Liquidity surplus getting serious: Finance ministry

KATHMANDU, July 10:

The government said Thursday that liquidity surplus is becoming a major problem for the country, and an improvement in the environment for investment is urgently needed to soak up excess liquidity.

Bank and financial institutions (BFIs) are currently sitting on a big pile of cash due to a heavy increase in deposit mobilization without much expansion in loan advancement. According to the first nine-month data released in the Economic Survey 2013/14 on Thursday, deposits collected by BFIs have reached Rs 1,398.9 billion while total loans and advances stood at Rs 1,095.4 billion.

The large amount of loanable money lying idle in the banking system has failed to increase economic activity in the country, the survey said.
Attributing the liquidity surplus to a swelling in remittances into the country during the period, the government said attention should be paid toward forging an investment- friendly climate and increasing loans to productive sectors.

Remittance inflow increased 34.1 percent to reach 356.7 billion in the first eight months of the current fiscal year -- 2013/14. Total remittances stood at Rs 434.6 billion in the whole of last fiscal year.

The Ministry of Finance (MoF) in the Economic Survey 2013/14 report said the government should bring more monetary instruments to stabilize the liquidity fluctuations often seen in the banking system, thereby reducing the negative impact on the overall economy.

Similarly, the government also admitted that it had not been able to rope in a large majority of people into the purview of the banking system.
According to the report, only 30 percent of the total population has access to formal banking services.

“This situation points show that despite a large number of BFIs operating in the country, they not significantly expanded their presence to remote and rural areas,” the report added.

The report also expressed concern over the cases of troubled cooperatives which have failed to return the public´s deposits. Reasoning that inability to amend related laws, lack of corporate governance, financial disciplines and regular monitoring, excessive loan exposure to the realty sector, and failure to adhere to cooperative norms were behind cooperatives running into trouble, the report warned of financial fallout.

“Institutional, structural, legal and other necessary reforms are urgent to resolve the problems being seen in the savings and credit cooperatives,” read the report.

Demand for the Indian currency (IC) in the country is also growing at an astonishing rate. To curb the shortages of ICs in the country, the government has been exchanging dollars from its reserve to buy IC notes. According to the report, the government bought Rs 202.46 billion worth of IC notes by selling $2.4 billion, up from $ 1.96 billion that it sold to buy ICs worth Rs 170.4 billion in the corresponding period of last fiscal year.

Source: Republica