November 3: The deposits of commercial banks, which were on a rise from mid-August to mid-October, have started declining continuously from the third week of October, according to the Nepal Bankers Association.

Bankers suspect that bank deposits started to decrease due to the upcoming elections as well as big festivals like Tihar and Chhath which concluded recently. They expect getting this amount back gradually to the banking system after elections.

According to the association, deposits decreased by Rs 6.24 billion from October 18 to 24, which further decreased by Rs 17.13 billion from October 25 to 28.

From mid-September to mid-October, the deposits of commercial banks had increased by Rs 61.64 billion to reach Rs 4547.15 billion. By October 28, the amount decreased to Rs 4523.78 biillion. As informed by the association, the bank deposits decreased from mid-July to mid-August, which then increased by Rs 52.15 billion by mid-September.

The deposits of banks decreased before Dashain but they started returning to the system after the festival. However, after the beginning of the election campaign for the House of Representatives and the State Assembly on November 20, deposits decreased by Rs 23.37 billion within the last 2 weeks of October.

Kiran Kumar Shrestha, CEO of Rastriya Banijya Bank informed that deposits were withdrawn from the banks for the festivals and election.

“Bank deposits decreased from mid-October due to spending on festivals and increased election activities. After the election, this money will gradually return back to the banking system,” he said.

“After this election, we are expecting some ease in the situation of lack of liquidity,” he added.

Although deposits decreased from mid-October, lending of commercial banks on the other hand has increased. Since mid-October alone, the credit flow of banks increased by Rs 5.10 billion. The total loan disbursement of banks reached Rs 4225.40 billion on October 28, which was Rs 4220.32 billion by mid-October.

Banks extended loans of Rs 10.58 billion from mid-July to mid-August, Rs 13.75 billion from mid-August to mid-September and Rs 30.4 billion rupees from mid-September to mid-October.

The banks provided loans even though there was no increase in deposits, causing their credit-deposit ratio (CD ratio) to increase. According to the association, the average CD ratio of banks was 87.23 percent till October 21, but it increased to 87.58 percent on October 28. According to the instructions of the Nepal Rastra Bank, banks should maintain a CD ratio of less than 90 percent.