June 15: Banks have shifted their focus towards loan recovery to bring the credit-deposit ratio (CD ratio) within the prescribed limit. According to the Nepal Bankers Association, banks have already recovered Rs 2 billion between June 3 and June 10. Deposit collection of banks increased by Rs 3 billion during this period.

The credit flow of banks had declined by Rs 2 billion in the previous week. Nepal Rastra Bank (NRB) has given banks until mid-July to bring the CD ratio within the limit of 90 percent in the current fiscal year. However, due to lack of liquidity in the banking system, the CD ratio of the banks exceeded the target set by NRB and therefore banks have almost stopped credit flow to maintain the ratio.

Lately, banks have been collecting deposits but not disbursing loans. This has resulted in an improvement in the CD ratio of banks. According to the association, the average CD ratio of commercial banks has dropped from 90.32 percent to 90.22 percent as of June 10. However, the CD ratio of 15 banks is higher than that specified by the central bank.

Despite the increase in deposit collection, banks adopted a strategy of reducing credit flow. Lately, banks have been focusing on recovery of loans by halting the flow of new loans.

Banks are under pressure to bring the CD ratio within the limits as the central bank has indicated that they will not be given any additional time.

Discussions with CEOs

NRB held a meeting with the Chief Executive Officers (CEOs) of commercial banks last Tuesday to discuss the unhealthy competitions among banks to raise interest rates.

One week after holding discussions with the bank's managers, NRB indicated that the upcoming monetary policy is going to be strict. Discussion was held in the presence of Deputy Governors Dr Neelam Dhungana and Bam Bahadur Mishra, Executive Director of the Banking and Financial Institutions Regulation Department, Dr Gunakar Bhatt, Executive Director of the Department of Bank Supervision Dev Kumar Dhakal and other high-ranking officials.