Decrease of Approximately 100 Billion Rupees in Deposits Following Removal of Local Level Account Deposit Facility
After removing the facility of counting up to 80 percent of the amount in the local level account as a deposit, deposits decreased by around 100 billion rupees on Tuesday alone.
About Rs. 1 Kharba of deposits were withdrawn from commercial banks on Tuesday alone. About Rs. 1 Kharba were withdrawn from commercial banks in a single day after the system of counting the amount in local level accounts as deposits was removed.
Earlier, when there was a lack of liquidity, the government had initially given the facility of allowing 50 percent of the amount in the local level account to be counted as a deposit. Later, the limit was increased to 80 percent. The facility given in this way was only for the end of last Ashad. After the time expired, about Rs. 1 Kharba, which the banks had been calculating for convenience, were withdrawn.
Even after Ashad, the banks requested the Ministry of Finance for the continuation of the facility of counting the amount in the local level account as a deposit. But the ministry did not continue the facility. Therefore, on Tuesday, the deposits of banks decreased by about Rs. 1 Kharba. The amount has been transferred to the government's account in the Rastra Bank, according to the Nepal Bankers' Association (NBA).
According to Finance Ministry sources, this facility, which was given in the past when there were liquidity problems, has now been removed as the liquidity situation has improved. "There is enough liquidity in the banks now. Therefore, the facility given at a difficult time has been removed," a source was quoted as saying, "If there is a problem with liquidity, it will be given again."
Until last Ashad, banks were allowed to count up to 80 percent of the amount in local level accounts as deposits. According to the arrangement, more than Rs. 90 Arba were withdrawn from the deposits of the banks on Tuesday. Although the liquidity situation is easy, even if the facility is removed, there is no major impact on the financial system.
After removing the facility to deposit up to 80 percent of the amount in the local level account, the loan-to-deposit ratio of commercial banks increased by 2 percentage points only on Tuesday, while the inter-bank facility increased by about 5 percentage points to around 7 percent.
Until the last day of the current financial year (until Ashad), around Rs. 6 Kharba were accumulated in banks and financial institutions. According to government data, a total of Rs. 6 Kharba has been accumulated in the financial system with around Rs. 5.25 Kharba loanable funds and 1.5 Kharba in excess liquidity. Due to the low growth rate of loan disbursement while the deposits have increased significantly, around Rs. 6.25 Kharba have accumulated in banks and financial institutions.
Currently, the amount (money) in the financial system is more than what is needed to provide loans to all banks and financial institutions in the coming financial year. Experts say that only if the deposits in the financial system are preserved in Ashad, the necessary money (resources) will be available to the banks to give loans in the next financial year. From 079 Ashad 1 to 080 Ashad 30, deposits in banks and financial institutions increased by Rs. 5 Kharba 77 Arba, while loans increased by Rs. 1 Kharba 37 Arba rupees. In the current financial year, the growth rate of deposits is Rs. 11.18 percent and that of loans is 2.91 percent. Loans in the current year as the domestic economy is in recession.
While the demand remains very low, the growth rate of deposits in banks has been good due to the continuously increasing remittances and increased government expenditure.
