The government has extended the timeline allowing banks to consider up to 80 percent of the reserve funds of local governments in their deposit for another six months, citing the liquidity crisis prevailing in the banking system.
The Ministry of Finance (MoF) wrote to Nepal Rastra Bank (NRB) on Monday to extend the deadline till mid-July 2023 to consider up to 80 percent of the reserve funds, said the ministry officials.
Last December, the government had increased the limit for the banks to consider the funds released by the federal government to the local governments in their credit-deposit (CD) ratio from 50 percent to 80 percent. At first, the provision was into effect till mid-July, which later on was extended by another six months.
The NRB has made it mandatory for banks to maintain the CD ratio at 90 percent. Due to the central bank’s check on loans in unproductive businesses, increase in remittance inflows and a number of other measures including the provision of local governments’ money counting in deposit, the banks are now cushioned with the margin of loanable funds.
The CD ratio with banks has now come down to 86.20 percent, according to the records with the NRB. Only a few months ago, the ratio used to remain above 90 percent. As of now, the commercial banks have collected deposits of Rs 4.64 trillion while they have provided Rs 4.21 trillion in loans, shows the NRB record.
However, bankers fear a decline in liquidity with them, citing a huge chunk of money that may go out of the banking system for the payment of tax with the second quarter end fast approaching. According to the bankers, more than Rs 40 billion is expected to go out from the banking system to pay the tax to the government. Showing this concern, the bankers have not reduced the interest rate which is at a higher side.
