Lack of liquidity (investment capital) is more challenging for banks

Jun Sun 2022 01:59:22

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Lack of liquidity (investment capital) is more challenging for banks

Kathmandu. Banks, which have been suffering from a lack of liquidity (investable capital) for a long time, are expected to face more challenges in the coming days. Due to the lack of increase in deposits in the banks and the need for the banks to implement the regulatory measures within this month, it is seen that the banks will be even tighter in the coming days.

Banks and financial institutions have been suffering from a lack of liquidity for more than eight months. Nepal Rastra Bank had also provided some policy easing to ease the liquidity problem of the banks. However, now that the NRB has tightened regulation by removing those policy facilitation, the banks are facing a challenge.

Nepal Rastra Bank (NRB) had abolished the provision of 85 percent loan-capital-deposit ratio (CCD ratio) through the monetary policy of the current fiscal year and implemented the provision of 90 percent loan-to-deposit ratio (CD ratio).

NRB has directed the banks to maintain the CD ratio at 90 percent within this month. At present, banks seem to be able to keep the CD ratio at the regulatory level. NRB has instructed the banks with CD ratio of more than 90 percent to bring it within the limit by sending a letter.

Similarly, the banks are facing challenges such as increasing bad loans, keeping the capital fund at a fixed level and maintaining the liquidity deposit ratio at 20 percent. In order to maintain these arrangements of NRB, it is necessary for the banks to have sufficient deposits. However, the main problem now is the lack of deposits.

At present, there is a deposit of Rs 49.93 trillion in the banking sector. There is a local level amount of Rs 2.5 trillion in such deposits. There is a bond of one trillion rupees. From July, the current level of deposits of around Rs 160 billion and Rs 100 billion will decrease. After that, the CD ratio is likely to increase.

Similarly, banks are under pressure to increase their profits along with the flow of credit. As it is the fourth quarter of the current fiscal year, there is a challenge for the banks to achieve the profit target. At the same time, the banks are facing the challenge of adjusting the regional credit limit of the total credit. As bad loans increase, the provision of banks will also increase.