A total of 32 commercial banks, which saw deposit level shrink by little over Rs 1 billion till the end of the second month of the current fiscal year, accumulated over Rs 14 billion in deposits in just one month period between mid-Sept to mid-Oct, according to unaudited figures provided by Nepal Rastra Bank.[break]
With the addition of these funds, total bank deposit stood at around Rs 875 billion as of mid-Oct as against Rs 861.69 billion recorded in mid-July.
Although the deposit growth seen in the first quarter of the current fiscal year pales in front of Rs 41.19 billion collected in the same period last fiscal year, many bankers, who were bracing for liquidity shortage, have taken the news positively.
“In terms of percentage, the growth is minimal, but in terms of volume it is noteworthy as the growth comes at a time when many banks are seeing deposits disappear from their accounts,” Anal Raj Bhattarai, CEO of Commerz and Trust Bank, told Republica.
Bankers that Republica talked to said deposit flow had increased suddenly in the third month of the current fiscal year due to a slew of factors ranging from release of funds by Nepal Rastra Bank during Dashain to multiplier effect of lending expansion and rise in flow of remittance.
“Since Dashain began right after the conclusion of the third quarter, the central bank must have released additional funds to clear various payments and provide festival allowances (to over 500,000 government employees, and pensioners),” Bhattarai said. “This was one factor that contributed to deposit growth.”
Dashain is also the time when Nepalis working abroad send more money home. “This gives a boost to remittance inflow which in turn causes the level of deposits to go up at banks,” Bhattarai said.
Another reason that pushed up deposits, according to Bhattarai, is the multiplier effect created by growth in lending, as credit extended to borrowers is usually parked as deposits in banks.
Unaudited figures provided by the central bank show that commercial banks extended over Rs 10 billion in loans in the third month of this fiscal year.
“Usually 80 percent of the credit extended to borrowers sits in accounts of banks and financial institutions, which boosts deposits,” Bhattarai said.
Despite this growth, many bankers are worried about continuity of the trend as commercial banks have reduced deposit rates to cushion the effects of liquidity flush, which have propelled many depositors to shift base to development banks and finance companies. This was one of the main reasons why deposits of commercial banks contracted by over Rs 1 billion in the first two months of the current fiscal year.
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