While Nepali banks have been piled up with an excess amount of lending funds, they are unable to increase investment due to low demand for credit caused by exorbitant interest rates.
The Nepal Rastra Bank (NRB) records show that the banks and financial institutions (BFIs) have collected deposits of Rs 5.437 trillion, while their lending stood at Rs 4.824 trillion, as of Monday. In the past nine months since the commencement of the current fiscal year, the BFIs collected additional deposits of over Rs 270 billion whereas they provided loans of Rs 108 billion. This provides the BFIs with a cushion of spare liquidity amount of more than Rs 163 billion.
Currently, the credit-deposit ratio of the BFIs has reached 85.45 percent against the threshold of 90 percent fixed by the central bank. According to the bankers, the remaining margin and excess deposit collections have enabled the BFIs to lend more than Rs 200 billion.
Bhuvan Dahal, past president of Nepal Bankers’ Association, said banks have been unable to increase their lending due to the high interest rates and increasing non-performing loans.
“If the banks still refuse to reduce interest rates, they have to face even more cases of bad debts,” he said.
Prakash Shrestha, executive director of NRB, said the banks are likely to reduce interest rates from mid-April, the beginning of Nepali New Year. According to him, the banks have already lowered the interest rates of deposits, while the central bank has also imposed a limit on premium that the banks can charge in excess to their base rates at a maximum of five percent.
According to the bankers, the demand for loans has plunged mainly due to the slowdown in economic activities. They said that the banks have been hesitating to issue more loans also due to the growing cases of bad debts.
Meanwhile, Prime Minister Pushpa Kamal Dahal on Monday said that the government has also been looking for a way out for reducing interest rates of banks. He expressed his view during a meeting with representatives of the BFIs.
Recently, the country has received respite on the external sector indicators including the balance of payments and foreign currency reserves. However, low government revenue collection, slow capital expenditure and exorbitant interest rates of banks have been grappling the economy.
