Bankers brief PM on liquidity scene

Leading bankers of the country today met caretaker Prime Minister Madhav Kumar Nepal and informed him about problems being faced by the banking sector including liquidity crunch and their investments in the crusher industry. The commercial banks are currently facing liquidity crunch due to a delayed budget coupled with diversion of deposits to other financial institutions offering higher interest rates. According to the central bank, in the first four months of current fiscal year (mid-November), total government spending increased by only 1.8 per cent to Rs 51.54 billion, compared to an increase of 36.5 per cent in the same period last year, creating tight liquidity situation in the market.

Nepal Rastra Bank (NRB) data reveals that the deposits, which stood at around Rs 620 billion in mid-July 2010, is currently at around Rs 623 billion. The government spending has dropped squeezing the liquidity in the market due to a delayed budget. The government spending creates ease of liquidity in the market as the money pumped in by the government attracts private sector money too.

Due to liquidity crunch, the Credit to Deposit (CD) ratio of commercial banks has also gone up from the central bank-fixed ratio of 85 per cent. Not only the much-delayed budget but also the higher interest rates offered by finance companies and cooperatives ¿ that are offering over 15 per cent interest ¿ have squeezed liquidity from the commercial banks.

According to the central bank, the deposit mobilisation of commercial banks has declined by Rs 4.5 billion during the first four months of 2010-11 against a growth of Rs 19 billion in the same period last year. The central bank attributed the decline in deposit mobilisation by commercial banks to the diversion of deposits to other financial institutions on account of higher interest rate offered by them. The bankers also requested the Prime Minister to bring a clear policy about the crusher industry. "Commercial banks have given Rs 6 billion in loans to the crusher industry. The total loan is at Rs 10 billion if lending from other financial institutions is included, said president of Nepal Bankers Association (NBA) Sashin Joshi.

Source:
tht