BFIs Fail to Increase Deposits Despite Raising Interest; Start Tightening Loan and Advances

Oct 24, 2021 11:53 AM Merolagani

Banks and financial institutions (BFIs) have started tightening extension of loan and advances after a failed attempt to increase deposits by raising interest rates.

Apart from this, in a bid to maintain the required CD ratio and CRR ratio, BFIs have started tightening loan extensions.

Its been a few months since BFIs started raising interest rates to increase deposits, however, the deposit collections have not increased as expected. However, the demand for loans and advances is quite high.

Due to this, the CD ratio of BFIs has surpassed the required limit. Few of them are above 90 percent. As per NRB data, the average CD ratio of BFIs is at 88.92 percent till October 27.

NRB has directed commercial banks of maintaining a CD ratio of a maximum of 90 percent by the end of the current FY through the monetary policy. 

However, the liquidity crunch in the banking sector has made the maintenance of the ratio at the desired level impossible for the banks. Moreover, the banks are maintaining the CRR ratio by borrowing funds from NRB in recent days,.

According to Bhuwan Dahal, Chairman of Nepal Bankers Association, as the CD ratio of BFIs has reached the highest level, the banks have started tightening extension of loans and advances. The banks are avoiding extending big loans as they do not have adequate funds, he added.

The NRB data also shows that the banks have started tightening loans in the recent period. The loan and extension that grew significantly in the last few months have suddenly turned downturn in recent days. The loan extension is equal to zero since the start of the month, Kartik.  The total loan extension which amounted to Rs 3998 billion in Asoj end declined to Rs 3996 on Kartik 5.

Not only loan extension, the deposit collection has also declined by Rs 25 billion since Kartik.

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