As per central bank regulatory norms, banks can disburse 90 percent of their deposits in loans. Banks have to maintain the credit-to-deposit ratio (CD ratio) at 90 percent. Bankers say commercial banks are now in a situation to give loans of around Rs 350bn.
As the government also spends in the last quarter massively, a large amount of cash is deposited in banks in the period. BFIs generally make little lending during the last quarter of the fiscal year. The BFIs that were experiencing a liquidity crunch until a few months ago are now facing problems of non-disbursement of loans. While liquidity is increasing, bankers say demands for loans have remained low. The credit expansion to the private sector in the first 11 months of the current fiscal year is far less than what the BFIs lent during the same period last fiscal year. According to the data of the Nepal Rastra Bank, the deposits of commercial banks have increased by Rs 386bn in the current fiscal year. However, their lending has grown by Rs 130bn only. According to bankers, the private sector has not sought bank loans with the deepening economic downturn. On the other hand, retail loans such as housing loans and auto loans have not grown with interest rates still remaining high. While the BFIs have been gradually lowering the loan interest rates, the demand for loans has not surged as expected. “The demands for loans have remained subdued due to the state of the economy and businesses,” said Sudesh Khaling, CEO of Everest Bank, “The demand for loans will not increase automatically even if the interest rate is falling. there must be a conducive business environment for that.” Bankers say lending will not grow much in Ashad, the last month of the fiscal year, in which BFIs will be more focused on loan recovery. Bankers say the other reason behind the sluggish lending is banks have become more cautious in loan disbursement due to a sharp rise in non-performing loans (NPLs).
