July 28: The loanable funds of banks has reached almost Rs 400 billion. The investible funds of banks has increased due to the inability of banks to increase credit expansion compared to deposit collection.

According to the latest data of Nepal Rastra Bank, deposits in banks and financial institutions have reached Rs 5621 billion as of Tuesday.

On the other hand, total credit flow of BFIs stands at Rs 4850 billion.

The credit-deposit ratio (CD ratio) of banks has remained at 83.21 percent. Banks are allowed to give loans by maintaining a CD ratio of up to 90 percent. According to this provision, commercial banks have the capacity to extend additional loans of Rs 381 billion.

On the last day of the last fiscal year, the CD ratio of banks had fallen to 81 percent. Accordingly, banks had the capacity to extend loans up to Rs 500 billion. However, the amount of bank deposits decreased after the facility of banks to calculate deposits from the local levels’ accumulated fund was removed. Deposits reached Rs 5767 billion on the last day of the last fiscal year and decreased by Rs 109 billion on the second day of the current fiscal year.

With the lack of liquidity in banks and financial institutions, the government last year gave the facility to count up to 80 percent of the accumulated money of the local level as bank deposits. This facility has been reduced from the current year due to excess liquidity in the banks.

After the end of the facility given to the banks, the deposit has decreased, and the interbank interest rate has also remained high. The central bank informed that the interbank interest rate remained at 6.2 percent on Tuesday.

At the end of the last fiscal year, the interbank interest rate fell below 1 percent. After the interbank interest rate fell below the target limit, the NRB tried to bring it within the limit by mopping excess liquidity through reverse repo and deposit collection tools but was unable to do so.

Sunil KC, president of Nepal Bankers Association, an organization of chief executive officers of A class banks, says that the liquidity (investable amount) has been consistently high for the past few months because there has been no expansion of credit compared to the increase in deposits. He said that because there is no demand for loans in the market due to high interest rates, liquidity has accumulated in banks.

The central bank, which issued a tight monetary policy last year, has adopted a strategy of reducing credit flow this year as well. It has been mentioned in the monetary policy that the private sector is burdened with more debt and this has also started increasing non-performing loans.