May 4: The total deposits of banks and financial institutions (BFIs) have reached Rs 5459 billion as of May 1, according to the data released by the Nepal Rastra Bank (NRB).

Prior to this, the deposits of BFIs was 5,453 billion. This is an increase of Rs 6 billion.

With the increase in remittance inflow and tourist arrival, deposits of BFIs are continuously increasing in recent times. Banks had deposits of Rs 5,430 billion on April 4 and Rs 5,448 billion on April 19. Compared to the increase in deposits, there has been no improvement in lending.

The central bank’s Current Macroeconomic and Financial Situation Report has also pointed out the imbalance between deposits and loans. As of February of the current fiscal year, deposits of BFIs have increased by Rs 280.57 billion (5.5 percent), while credit flow has only increased by Rs 128.18 billion (2.8 percent). In other words, the loan disbursement is less than half compared to the deposit collection of the banks in the current fiscal year.

According to NRB, the total loan disbursement of banks and financial institutions has reached Rs 4,842 billion as of Tuesday. High interest rates of bank loans and low economic activities in the market have slowed the demand for loans. In February of this year, the average base rate of banks reached 10.64 percent, while the average interest rate on loans reached 13.03 percent.

Liquidity on the other hand is increasing due to lack of lending compared to deposits in banks. On Tuesday, the average credit-deposit ratio (CD ratio) of BFIs fell to 85.24 percent. The previous day the CD ratio was 85.32 percent.

According to the provisions of NRB, banks can grant loans by maintaining a CD ratio of up to 90 percent. According to Tuesday's data, the banks have the capacity to extend additional loans worth Rs 258 billion. While the high interest rates have slowed down new loans, the banks have also tightened up lending because the market is not favourable.

Prakash Kumar Shrestha, executive director of NRB said, “Although the banks have the capacity to give loans of around Rs 250 billion, there is no investment. Currently, banks are in a comfortable state of liquidity. Because the interest rate is high, new loans may not have been issued.”

After the liquidity situation eased, BFIs reduced the interest rates on deposits since April. Commercial banks have reduced the maximum interest rate of fixed deposits to 9.99 percent.

As the liquidity situation eased, the interbank interest rate for transactions between banks has also been maintained at 7 percent. Similarly, the interest rate of treasury bills is also decreasing.

As per the bankers, the spread rate of deposits and loans has been reduced since March according to the instructions of NRB, so the interest rate of loans will gradually decrease and the demand for loans will gradually increase.