February 19: Deposit collection of commercial banks increased by about Rs 2 billion in the first seven months of the current fiscal year. The banks, which faced liquidity problem in the last fiscal year, have shown improvement in the current fiscal year.

According to Nepal Bankers Association, the umbrella organization of commercial banks, the total deposits of commercial banks increased from Rs 4541.44 billion in mid-July last year to Rs 4741.90 billion rupees by mid-February.

In the last fiscal year, the deposits of commercial banks increased by Rs 340 billion. But in the first seven months, it increased only Rs 110 billion. Despite the increase in deposits this year, banks have not been able to increase their lending. In the seven months of the current fiscal year, commercial banks have extended loans of only Rs 115 billion.

The total credit flow of commercial banks, which was Rs 4175 billion in mid-July last year, increased to Rs 4290 billion by mid-February.

During last year, the banks disbursed loans of Rs 445 billion including Rs 434 billion in the first seven months. Banks had started to reduce lending from mid-January of last year.

Recently, there has been an improvement in the deposits of the banks, but there has not been an improvement in the lending. Sunil KC, President of Nepal Bankers Association and Chief Executive Officer of NMB Bank said that there is no demand for loans in banks in recent times. He said, “With the improvement in the economy, deposits in the bank increased as well. But, at the moment, the demand for loans in the bank is low.”

President KC said that even though the liquidity situation seems to be somewhat comfortable, banks are still in a wait-and-watch situation. He said that while the economic indicators are positive, the government has removed the ban on imports and this will put on foreign exchange reserves. He added that the monetary policy has also kept the policy rates unchanged.

KC claims that recently banks have been reducing the interest rate of deposits and that will gradually make loans cheaper. “As the interest rate of deposits decreases, the interest rate of loans also decreases. However, as businessmen say, it is not possible for the interest rate of loans to drop to a single digit immediately,” said KC.