Rs 60 arba gather dust in commercial banks even in the festive season 

ShareSansar, October 8:

More than Rs 60 arba has accumulated in the commercial banks alone – Rs 25 arba in just last three months, due to the lack of adequate investment opportunities.

This is the highest amount ever to be deposited in the commercial banks of the country. On the other hand, they have been able to issue loans worth only Rs 13 arba since the beginning of the current fiscal year around three months ago. 

The commercial banks had issued credit worth Rs 40 arba within the first three months of the last fiscal year.

This is, however, a good news for the share market and the investors in that the banks and other BFIs are increasingly taking more interest in the stock market to effectively manage their portfolio due to the lack of good investment opportunities.

After a hiatus of three years, the Nepal Rastra Bank has already issued four reverse repos in September to absorb excess cash in the banking system. It has also issued an outright sale auction to manage the liquidity last month. But they have not been effective enough to mop up surplus liquidity in the system.

The BFIs have been compelled to slash the interest rates on lending to less than 10 percent due to excessive liquidity.

Many bankers are concerned as they still don’t find enough borrowers even in the face of Dashain though the demand for loan are high during the festive season from both entrepreneurs who open the letter of credit (L/C) to import goods targeting Dashain and Tihar and the general customers who seek auto and home loans.

The surging US dollar against the local currency has made the importers shy away while the value of remitted amount has increased on the other hand, which fuels liquidity and inflation.

According to the central bank, by the last week, total deposit in all 31 commercial banks crossed Rs 10 kharba 42 arba, while they have been able to invest only Rs 7 kharba and 28 arba.

There is excessive liquidity in the market also because the government was able to duly bring the budget for the current fiscal year this time around.

The timely budget injected new lease of life in the market and the investors started to deposit their money in banks, they said, adding the onset of the festive season also helped boost fluidity.

Huge investment by the government and the political parties in the run-up to the second Constituent Assembly election is another factor contributing to liquidity.

The high liquidity has also led to decreased inter-banking lending and the lending interest rate.