October 4: Total deposits in banks and financial institutions have exceeded Rs 5800 billion. Bank deposits have increased due to the continuous increase in remittance flow and the arrangement made by the government to allow BFIs to calculate the deposits from the accumulated funds at the local level as bank deposits.

According to the data published by Nepal Rastra Bank, the total deposits in banks and financial institutions as of last Sunday reached Rs 5806 billion. Compared to the previous day, bank deposit increased by Rs 14 billion on Sunday. On Saturday, the deposit portfolio of banks stood at Rs 5792 billion.

The total deposits in the banking system were Rs 5767 billion by the end of the last fiscal year (FY). After the government reduced the facility of calculating 80 per cent of the accumulated funds at the local level as bank deposit to 50 per cent, the deposits decreased by Rs 109 billion in the first two days of the current fiscal year.

However, after a discussion with the bankers in early September, Finance Minister Dr Prakash Sharan Mahat allowed banks to consider 60 per cent of the accumulated funds at the local level as bank deposits. Likewise, as the inflow of remittance is high, bank deposits have been increasing.

Despite the increase in bank deposits, the credit flow of BFIs is off the mark. As of Sunday, banks and financial institutions had invested a total of Rs 4932 billion. At the end of last year, the total credit flow of banks stood at Rs 4879 billion, which has increased by Rs 53 billion in two and a half months. Banks are competing to invest in government bonds because there is not much demand for loans compared to the increase in deposit collection.

Along with the increase in bank deposits, the credit-deposit ratio (CD ratio) of banks has also decreased. The CD ratio, which was 82.21 per cent on Saturday, dropped to 82.05 per cent on Sunday. Similarly, as liquidity is high, the average interest rate of interbank transactions has also dropped to 2.52 per cent.

Banks are allowed to invest by maintaining a CD ratio of up to 90 per cent. According to this provision, the banks can disburse additional loans of up to Rs 461 billion.