Laxmi Capital News
Credit crunch situation not as severe as believed earlier

Dispelling concerns about huge cash withdrawalfor tax submission at the end of the second quarter, swift and prompt handlingof the situation by the banks seems to have averted a major crisis, accordingto Nepal Rastra Bank (NRB).

NRB — the central regulatory and monetaryauthority — has gauged the gravity of the situation through three differentmeasures.

According to Nara Bahadur Thapa, executivedirector of the central bank, firstly, there has been no unnatural change inthe cash reserves of the banks that is with the NRB.

Similarly, interbank rate is towards the lowerbound of the interest rate corridor. “This means that the banks are not underany kind of pressure because if they were facing shortage of funds, theinterbank rate would move towards higher end of the interest rate corridor,”Thapa explained.

Moreover, the banks have not approached thecentral bank for special instrument like the standing liquidity facility (SLF)that the banks can utilise when there is crisis of funds in the banks for domesticpayment. As per Thapa, banks have not demanded SLF facility as they are in acomfortable position and the aforementioned factors indicate the situation inthe market was not as severe as believed earlier.

The Inland Revenue Department has collected Rs 48billion in the last month of second half of this fiscal (mid-December tomid-January). The prospects of huge amount being withdrawn from the banks forpayment of taxes at the end of the second quarter had made the banks anxious asthey already had a very thin cushion to maintain credit to core capital plusdeposit (CCD) ratio of permissible 80 per cent.

During a conversation with The HimalayanTimes, however, majority of banks said that their CCD level is in between79 and 80 per cent. Still, banks have already halted loan disbursement, exceptin critical loan commitments since last month, as they no longer have funds tolend.

“Precautions taken by the banks saved them fromovershooting the CCD level beyond 80 per cent,” said Bhuvan Kumar Dahal, CEO ofSanima Bank.

Deposits and lending of the banks are expected tohave increased by around Rs 80 billion and Rs 60 billion, respectively, at theend of second quarter as the banks provided higher interest on deposit accountsand capitalised interests on loans at the end of the quarter, according tobankers.

By the week before the second quarter ended,commercial banks had mobilised credit worth Rs 1,891 billion against depositcollection of Rs 2,104 billion.

NRB Executive Director Thapa said that there isRs 41 billion liquidity in the market at present compared to Rs 50 billionone-and-a-half weeks back.

Source: The Himalayan Times, 16th January 2018


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