Amidst Liquidity Crunch, Commercial Banks Are Forwarding Loans to These Sectors

Nepal is facing an extreme liquidity crunch at the moment. Experts claim that fall in remittance, low capital expenditure, import-export imbalance, and rumored channeling of funds to non-banking systems like cryptocurrencies, Hundi, etc. are the major causes.

Furthermore, as the economy gained pace after the lockdown, the demand for capital has skyrocketed. Thus, banks have been involved in aggressive credit expansion at a time when the deposit is declining. In retaliation, depository financial institutions like commercial banks, development banks, finance, and microfinance companies are voraciously mobilizing their marketing team to sell various deposit products at attractively high-interest rates.

The prime purpose of collecting funds is ultimately to disburse these funds as loans and advances to other customers. This is the core function of depository financial institutions and the main avenue for profit-making.

The central bank has published the data regarding loans and advances disbursed by the commercial banks till the first six months of the current fiscal year 2078/79.

According to Nepal Rastra Bank's report, commercial banks have deployed Rs. 41.43 Kharba on different sectors till Poush end FY 78/79. They have extended the majority of lending towards the Wholesaler and Retailers sector i.e. Rs. 8.62 Kharba by the end of Poush. The maximum concentration of credit is under Wholesaler and Retailers, Consumption Loans, and Agriculture, Forestry & Beverage related production sectors i.e. 21.11%, 17.83%, and 17.81% respectively.