May 19: Credit flow and deposit collection of banks have been steadily declining. Banks have started reducing the credit flow as deposit collection in banks have not been able to rise amid the current liquidity crisis. 

According to the Nepal Bankers’ Association, Rs 19 billion was withdrawn from commercial banks between mid-April and mid-May. The total deposits of commercial banks which stood at Rs 4.38 trillion by mid-April, has come down to Rs 4.37 as of mid-May. The association said that although there has been a slight improvement in deposits in late April, there has been a steady decline in deposits after that. 

Local elections is believed to be the main reason for the decline in deposit collection of banks. Chairman of the Nepal Bankers' Association and Chief Executive Officer of the Agricultural Development Bank Anil Kumar Upadhyaya said that the money withdrawn from the banking system during the election will be returned to the system gradually. 

Along with the deposit collection, the credit flow of the banks have also declined. The credit flow of the banks, which was Rs 4.197 trillion in mid-April, has dropped by Rs 6 billion to Rs Rs 4.191 trillion in mid-May. 

The credit flow of the banks are stagnant at the moment as the credit-deposit (CD) ratio is high due to the liquidity crisis. Banks have disbursed only small loans that were already approved. 

Nepal Rastra Bank has directed banks to maintain the CD ratio of 90 percent by mid-July. However, according to the data of the association, the CD ratio of only nine banks was within the prescribed ratio by the central bank. Besides, the CD ratio of more than a dozen banks is more than 91 percent and half a dozen banks is around 90 percent. The banks have started reducing credit flow to maintain the CD ratio. As per the NRB, the average CD ratio of banks till May 16 is 90.44 percent.