Laxmi Capital News
Govt starts consultation to address credit crunch

Thegovernment has taken initiatives toward resolving the problem of 'creditcrunch' that has again grappled the banking sector due to mismatch between indeposit and loan growths. 

Theinitiative of the Ministry of Finance toward finding solutions for resolvingthe credit crunch problem comes in the wake of growing calls from privatesector and business leaders for curbing rising interest rates. Private sectorand business leaders have intensified their lobby with the government to seekthe latter's intervention for easing shortage of lendable fund in bank andfinancial institutions (BFIs) and tame the rising interest rates.

“Wehave been holding discussions and consultations with concerned stakeholders foraddressing the current problem seen in the banking industry,” Uttar KumarKhatri, joint secretary at the Finance Sector Management Division of thefinance ministry, told Republica.

Earlierthis week, bankers had met Finance Secretary Shankar Prasad Adhikari and urgedhim to make needful efforts for keeping interest rates at a 'certain level'.“We had met the Finance Secretary to brief him about the current problem andseek his support in keeping interest rates to a certain level,” saidGyanendraDhungana, the acting president of Nepal Bankers' Association (NBA).

Bankerssay that slow spending of capital budget is one of the major reasons behind therecurring liquidity problem in the banking industry. As most of the BFIs arenearing the upper level of prudential lending limit, they have faced shortageof fund to extend as loans. The rise of capital cum deposit ratio to nearly 77percent has prompted BFIs to raise interest rates on fixed deposit to as highas 13 percent. While they believe that they can arrange funds by offeringhigher interest rates, the rise in deposit rate also gets passed on to theborrowers. 

Meanwhile,speaking at an event organized by Global IME Bank Ltd in Kathmandu on Tuesday,Nepal Rastra Bank (NRB) Governor Chiranjibi Nepal said that the central bankwas in close consultation with the finance ministry to manage treasury surplusof the government held at the NRB. He, however, said that the BFIs wereresponsible for the current problem. Governor Nepal said that the aggressivelending approach taken by the BFIs despite low deposit growth has resulted intothe 'credit crunch' and spiral-like rise in interest rates. He also warned theBFIs that the central bank would take punitive action if they do not correcttheir aggressive lending approach to appease their shareholders.  

“BFIsshould increase their deposit if they want to extend more loans. They shouldwork hard to attract new deposits,” he said, adding: “More than 60 percent ofpeople are still out of the banking reach. They should go there to increasedeposit.”

CNIDelegation meets PM

 Adelegation of Confederation of Nepalese Industries (CNI), led by its presidentHariBhakta Sharma, met with Prime Minister SherBahadurDeuba on Tuesday andurged him to take needful initiative for resolving the current shortage oflendable fund in the banking system. 

Theumbrella organization of industrialists called for immediate solution toaddress the shortage of lendable fund in the banking industry. It told PrimeMinister Deuba that the rising interest rates was making adverse impact onindustrial and manufacturing sector due to increased cost of production anderosion of competitiveness of their productions. 
The CNI has requested Prime Minister Deuba to take initiatives for bringinginterest rates to a desired level. 

Issuinga statement, CNI said that Prime Minister Deuba assured them to resolve theproblem as soon as possible after holding consultations with concernedstakeholders.

Source: MyRepublica, 2rd January 2018

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