We have stopped accepting the larger deposits as, in the absence of proportionate credit flow, it only adds cost to the bank, said Narayan Das Manandhar, chief executive of Prime Bank.[break] He told Republica that the bank had not been able to issue credit to the tune of deposit collection at present and this has largely compelled bank to take the different course.
Such a trend has emerged also because the commercial banks now are not allowed to re-deposit their collections in other banks to earn interest. In the past, banks having excessive deposits used to re-deposit the same at other banks, earning a decent interest return. But the central bank has imposed restriction on such provision in the new monetary policy.
This has discouraged additional mobilization of large deposits. Moreover, as banks are already withdrawing such deposits in an attempt to comply with the policy, the overall deposit of the commercial banks in records has declined.
Currently, total deposit mobilization of banks stands at Rs 621 billion. It was Rs 631 billion in mid-July 2010.
Bankers, meanwhile, said the ceiling imposed on real estate and housing loans exposure by the central bank has largely compelled the banks to be very choosy when it comes to issuing loans in the sector. Apart from that, higher interest rate triggered by the liquidity crunch of the past has largely slowed banks’ retail business, they added.
Over the last six months, land, housing, auto and other lending rates have jumped by more than 5 percentage points.
The central bank in the new monetary policy has urged the banks to invest on productive real sectors. However, owing to continued political instability, insecurity and labor problems, bankers said they are not getting encouraging credit demand from the entrepreneurs.
“This has largely shrunk the investment avenues. Hence, banks are refraining from accepting big deposits,” said a chief executive of another commercial bank.
To discourage the deposits, some of the banks have also slashed interest rate of call deposit. “We have cut call deposit rates,” said Rajan Singh Bhandari, chief executive of Citizens Bank International and vice president of Nepal Bankers’ Association.
In the past, the banks were offering as much as 14 percent interest return to lure large depositors. But they have now dropped the rate to around 11 percent.
“But we have left the rates of the fixed deposits unchanged because we are still unsure whether or not the sources of deposits that we are getting now is sustainable,” said Bhandari.
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