Economy Battles Liquidity Crisis: Deposit Squeezed Down 35.31 Arba in Kartik, Lending Stretched Up 36.12 Arba

The elaborate report on the trend of deposit and lending in the nation's commercial banks has been unveiled. This is the data reported as of Kartik.

Commercial banks have reported a total of 35.31 Arba squeeze in the total deposit collected in Kartik compared to the data reported in Ashwin. NIC Asia Bank Limited (NICA) has reported the highest squeeze compared to its previous Ashwin figure: a slash of 13.89 Arba. Meanwhile, Himalayan Bank Limited has reported a rise in monthly deposits by 14.6 Arba.

On the other side of things, banks have simultaneously been hit by a surge in capital demands from the public and businesses. As the economy restarted its revival from the shutdown, businesses and individuals have started to demand funding from the banks. Commercial banks have reported an increase in total monthly loan forwarding by 36.12 Arba. Himalayan Bank Limited has reported the highest individual rise by 6.07 Arba. Nonetheless, Rastriya Banijya Bank has rather reported a fall of 2.56 Arba in its data.

Combining these two scenarios, there has been pressure on the banks to forward loans at a time when deposit funds are drying up. This has resulted in a competitive drive among banks to raise interest rates to attract deposits. Meanwhile, the central bank has retaliated by restricting massive interest rate hikes to save borrowers and businesses from high-interest expenses.

During a discussion in the Ministry of Finance with the Governor of NRB, CEOs, and representatives of commercial banks last Friday, Finance Minister Janardan Sharma said that liquidity balance can be achieved by increasing government capital expenditure in the short run and managing foreign resources.

He said that the liquidity problem could be solved in the long run only by mobilizing capital in the manufacturing sector. "As soon as capital is mobilized in the manufacturing sector, many problems will be solved," he said, urging banks to "tighten lending to unproductive sectors".

"We have tightened some imports now. Banks should also increase restriction in the same way," Sharma said.

During the discussion, Finance Secretary Madhu Kumar Marasini clarified that liquidity will not be reduced by transferring local level funds to commercial banks as the banks have said. "Money doesn't go all at once. There's not as much money as you say," Marasini said.

Similarly, Chairman of Nepal Bankers Association and CEO of ADBL Anil Kumar Upadhyaya suggested that the lack of liquidity in the market could be solved by increasing the capital expenditure of the government. He also said that the liquidity problem would be solved immediately if arrangements were made including Hundi control, a speedy introduction of foreign loans or grants, and keeping 100 Arba of the funds of local level and corporations in commercial banks.

Similarly, Nabil Bank CEO Anil Shah stressed the need to increase foreign exchange reserves by stopping the import of non-essential items. He suggested that the import of chocolate and other commodities should be stopped.

The CD ratio as of Kartik is 90.15.

Monthly Deposit Figures

Monthly Lending Figures