November 22: Banks and financial institutions are focusing on increasing credit flow due to the accumulation of investable capital (liquidity) along with the increase in deposits.

Banks’ lending has increased due to the increase in domestic economic activities amid festivals like Dashain, Tihar, and Chhath. 

According to the latest data published by Nepal Rastra Bank, the banks disbursed a total credit of Rs 32 billion between mid-October to mid-November. As of mid-October, the total loans of banks stood at Rs 495.2 billion rupees, which increased to Rs 498.4 billion on November 10.

In the current fiscal year (FY) alone, the credit flow of banks increased by Rs 106 billion. During this period, deposits increased by Rs 157 billion. Along with the increase in deposits, banks reduced interest rates and emphasized on lending. 

As banks have more investable funds (liquidity), they are reducing interest rates on deposits and loans. On November 10, the average credit-deposit ratio (CD ratio) of banks was 81.35 percent. There is a provision that banks can grant loans by maintaining a CD ratio of up to 90 percent. According to this provision, they still have the ability to provide additional loans of Rs 493 billion. Likewise, the money withdrawn from the banks during Dashain, Tihar and other festivals have returned to the banking system. 

NRB said that after Dashain holidays, deposits in banks and financial institutions increased by Rs 48 billion. According to NRB, the total deposits of banks and financial institutions reached Rs 591.6 billion as of November 10. 

By mid-October, the total deposits in the financial system stood at Rs 5915 billion. During Dashain, when deposits were withdrawn from banks, the deposits decreased to Rs 5868 billion on October 26. 

After the Dashain holidays, deposits in the banking system started to increase continuously. NRB’s Executive Director Gunakar Bhatta informed that Rs 76 billion rupees flowed from the banking system to the market during Dashain, and the amount has returned to the system. However, bank deposits have decreased due to the increase in people withdrawing money for Tihar and Chhath.  The recent increase in remittance inflow has seen a positive effect on bank deposits. Remittances worth Rs 136 billion were received by mid-November. This is the highest amount ever received in a single month. Similarly, it is mentioned in the report of NRB that the service income from tourists also increased.

As the banks have more liquidity, the short-term interest rates including interbank transactions and treasury bills have also fallen to a low point. NRB informed that the average interbank interest rate remained at 2.80 percent on November 10.