Depositors lose confidence

Despite various measures commercial banks could not increase the deposits, the deposit mobilisation has increased by only 4.2 per cent amounting to Rs 22.9 billion till the first eight months of the current fiscal year. According to the Nepal Rastra Bank (NRB)'s macroeconomic report of first eight months of current fiscal year, the total deposit amount with the commercial banks increased by only 4.2 per cent to Rs 572.7 billion whereas in the same period of last year the total deposit had increased by 14.3 per cent. Currently, the banks and financial institutions (BFIs) are distressed due to dwindling deposits so that they have been raising the interest rates to attract new deposits. The money coming in the bank is waning mainly due to loss of confidence in the banking system and due to shrinking remittance inflows. The shortage of cash last October has also played a major role. Likewise, due to Anti-money Laundering Act people are apprehensive to go to banks to deposit the money, though the Act has been brought according to the international rule. Under the act, a depositor who deposits more than Rs 1 million needs to disclose the source of income while depositing at the BFIs. To avoid disclosing the source, the depositors are shying away from banks to deposit the large amounts. Lack of awareness among the depositors has caused a huge loss of deposits. The private sector credit of commercial banks has increased by 16.5 per cent. Among the total private sector credit, the credit to production sector increased by 9.5 per cent in the first eight months of the current fiscal year in comparison with the growth of 12 per cent in the samer period last year. Under the production sector credit, the credit to sugar, cement, iron and steel industries observed a greater credit expansion. Similarly, credit to agriculture sector has also increased by Rs 2 billion. "Credit to wholesale and retail businesses has also expanded by 23.2 per cent and the credit to finance, insurance and fixed assets also increased by 41.6 per cent while the credit to service sector increased by 20.2 per cent," said the report. The credit to real estate sector was extended to Rs 14.9 billion as compared to Rs 7.7 billion in last year's corresponding period. The liquid assets of the commercial banks stand at Rs 167.9 billion by mid-March. Among the liquid assets, liquid fund has declined by 9.7 per cent. This decline in liquid fund of commercial banks is attributed to the decline in commercial bank's balance with the NRB as well as balance held abroad. The balance held abroad by commercial banks has gone down by Rs 4.3 billion amounting to Rs 49.2 billion whereas the balance with NRB has declined by Rs 10.1 billion. Similarly, commercial bank's investments in government securities have also declined by 12.3 per cent. The liabilities, assets structure of commercial banks has also changed due to higher growth of commercial banks' loans and advances relative to their deposit mobilisation. The serious concern is credit to deposit (CD) ratio. The CD ratio increased to 90.2 per cent in mid-March from 81.2 per cent in mid-July 2009. "The liquidity-deposit ratio also declined to 29.3 per cent in mid-March 2010 from 34.2 per cent in mid-July 2009," said the report.

Source: THT