In a blow to banksreeling under the credit crunch, the study panel formed by the Ministry ofFinance (MoF) has said that the ministry cannot allow Nepal Rastra Bank (NRB)to transfer the funds from the government’s treasury to the banks for the shortterm to resolve the current crisis of loanable funds.

A panel led by RamSharan Pudasaini, joint secretary of the Economic Policies Analysis Division,MoF and comprising Executive Directors of NRB, Nara Bahadur Thapa and NarayanPaudel, and Deputy Financial Comptroller General Yadunath Bhattarai hassubmitted a report to the MoF stating that the idea of transferring the fundsfrom the government’s treasury to banks will contradict the Appropriation Act.

“Without amendingthe Appropriation Act and having a clear modality, the MoF cannot allow thecentral bank to deposit the government’s fund in the banks,” said Pudasaini,joint secretary at the MoF.

Banks are facing acrisis of loanable funds as loan growth was almost double the depositcollection in the first five months of this fiscal. According to Nepal Bankers’Association, commercial banks have floated Rs 156 billion in loans againstdeposit collection of Rs 88 billion in between mid-July and mid-December.

The credit to corecapital plus deposit (CCD) ratio of all the banks, excluding thegovernment-owned Rastriya Banijya Bank, is likely to overshoot the permissible80 per cent limit in the near future. Hence, the banks had sought help from thegovernment (requesting transfer of treasury funds) and NRB (through refinancingfacility), as they have a very thin cushion to maintain the permissible CCDlevel.

Banks have almosthalted credit disbursement as deposit collection has been sluggish. As aresult, profit of the banks has been adversely affected as the loan expansionhas also slowed down to a crawl due to lack of deposits in banks.

In the meantime,eyeing the possibility of market destabilisation when institutional depositorsstart to withdraw their funds from one bank and deposit it in another to reapbenefits of increased interest rate, the central bank has instructed the banksto not breach 11 per cent interest on fixed deposits for institutionaldepositors.

Source:The Himalayan Times, 13^th January 2018