Monetary policy could not ease liquidity
KATHMANDU:
The bankers said that the relief felt by banks and financial institutions by reduction in Cash Reserve Ratio (CRR) through the monetary policy is not going to last long as by mid-January they have to curb their credit creation to maintain 80 per cent Credit to Deposit (CD) Ratio.
“The 0.5 percentage point reduction in CRR releases Rs 4 billion, however, to reduce CD Ratio to 80 per cent from the current acceptable limit of 85 per cent will disable banks lending,” said chief executive of Bank of Asia Nepal Parashuram Kunwar Chhetri in an interaction organised by Society of Economic Journalists-Nepal (Sejon) in the valley today.
“Moreover, as CRR is only a component of Statutory Liquidity Ratio (SLR) that has remained unchanged at 15 per cent,” he pointed out.
His opinion was seconded by president of Development Bankers Association of Nepal Manoj Goyal.
He called the Monetary Policy as cautiously balanced due to fiscal policy dictated a growth rate of five per cent and inflation of seven per cent. “NRB has drafted the policy based on these estimates that will guide the money supply and interest rate,” he said, adding that the difficulties in long term infrastructure financing at lower interest rate is not possible in the present condition.
“The banks and financial institutions require long term funds to finance such projects so to retain the fund also they have to give high interest for depositors pushing the lending interest higher,” he explained. “Therefore, government should provide interest subsidy fund.”
“High interest rates and liquidity problem will continue to haunt the financial sector,” said president of Nepal Bankers Association (NBA) Ashok Rana.
He also doubted Deposit and Credit Guarantee Corporation (DCGC)’s capability to insure all the small deposits — of commercial banks, development banks and finance companies — with its little paid-up capital.
“The reduction of CRR is not enough to fight the current liquidity situation,” president of Nepal Finance Companies Association Rajendra Man Shakya, said, adding that the central bank is forcing the banks and financial institutions to get merged, however, it is not rational to expect merger of two weak entities will transform into a stronger one.
He expressed that the Monetary Policy has failed to provide relief for the loans floated to real estate and crusher industries where the banks and financial institutions loan exposure are high.
“Despite accepting deferred payments of interest, the realtors do not have the ability to pay back the outstanding dues,” he pointed out, adding that banks and financial institutions are able to pull back their real estate loans to acceptable limit and maintain Credit to Deposit ratio by adjusting the loans to other headings, which is only going to show clean balance sheet but the current condition could not improve.
Source: THT
The bankers said that the relief felt by banks and financial institutions by reduction in Cash Reserve Ratio (CRR) through the monetary policy is not going to last long as by mid-January they have to curb their credit creation to maintain 80 per cent Credit to Deposit (CD) Ratio.
“The 0.5 percentage point reduction in CRR releases Rs 4 billion, however, to reduce CD Ratio to 80 per cent from the current acceptable limit of 85 per cent will disable banks lending,” said chief executive of Bank of Asia Nepal Parashuram Kunwar Chhetri in an interaction organised by Society of Economic Journalists-Nepal (Sejon) in the valley today.
“Moreover, as CRR is only a component of Statutory Liquidity Ratio (SLR) that has remained unchanged at 15 per cent,” he pointed out.
His opinion was seconded by president of Development Bankers Association of Nepal Manoj Goyal.
He called the Monetary Policy as cautiously balanced due to fiscal policy dictated a growth rate of five per cent and inflation of seven per cent. “NRB has drafted the policy based on these estimates that will guide the money supply and interest rate,” he said, adding that the difficulties in long term infrastructure financing at lower interest rate is not possible in the present condition.
“The banks and financial institutions require long term funds to finance such projects so to retain the fund also they have to give high interest for depositors pushing the lending interest higher,” he explained. “Therefore, government should provide interest subsidy fund.”
“High interest rates and liquidity problem will continue to haunt the financial sector,” said president of Nepal Bankers Association (NBA) Ashok Rana.
He also doubted Deposit and Credit Guarantee Corporation (DCGC)’s capability to insure all the small deposits — of commercial banks, development banks and finance companies — with its little paid-up capital.
“The reduction of CRR is not enough to fight the current liquidity situation,” president of Nepal Finance Companies Association Rajendra Man Shakya, said, adding that the central bank is forcing the banks and financial institutions to get merged, however, it is not rational to expect merger of two weak entities will transform into a stronger one.
He expressed that the Monetary Policy has failed to provide relief for the loans floated to real estate and crusher industries where the banks and financial institutions loan exposure are high.
“Despite accepting deferred payments of interest, the realtors do not have the ability to pay back the outstanding dues,” he pointed out, adding that banks and financial institutions are able to pull back their real estate loans to acceptable limit and maintain Credit to Deposit ratio by adjusting the loans to other headings, which is only going to show clean balance sheet but the current condition could not improve.
Source: THT
