Nepal Rastra Bank (NRB) in the first week of March had issued a circular asking all banks and financial institutions to first maintain the CCD ratio of 85 percent by mid-July 2011 and further bring it down to 80 percent by mid-January 2012.[break]
This means, by mid-January 2012 all banks and financial institutions cannot give away credit of more than Rs 80 for every Rs 100 they get in the form of deposits and core capital.
The CCD ratio is calculated by first adding loans disbursed in local currency and core capital, also known as tier one capital, which includes equity capital and portion of net income retained by the bank or financial institution. This sum is then divided by the amount of deposits mobilized in local currency. This outcome is then multiplied by 100.
The provision of CCD ratio was introduced to ensure all banks and financial institutions have enough cash in their vault to deal with liquidity-related problems. As of mid-December, all 31 commercial banks, except Agricultural Development Bank Limited (ADBL), have met this ratio, according to a high-ranking NRB official.
The CCD ratio of the state-owned ADBL, one of the oldest banks in the country, still stands at around 85 percent.
“This is because the government had primarily used the bank as a vehicle to enhance rural people´s access to credit till the 1990s,” the NRB official said.
“We are now considering to give it a preferential treatment by giving it more time to meet the NRB requirement as it had basically focused more on lending than mobilizing deposits.”
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