KATHMANDU, May 14: With the market starting to sense a shortage of liquidity after a recent ordinary share subscription moped up a huge amount of money from the market, leading bankers have urged the central bank to review some of its policies.
A quick survey by Republica found that the interbank rate -- the lending rate between commercial banks -- has touched as high as 9 percent whereas last week it was over 7 percent. Knowledgeable bankers predict that the interbank rate can touch double digits by the end of the week if the authority concerned takes no step to ease the crunch.[break]
Though the current liquidity crunch is a temporary phenomenon prompted by the recent huge share subscription for Sunrise Bank, concern is high that such a crunch is likely to linger for a long time since at least three more big public offerings are in the pipeline, according to bankers.
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The recently concluded Initial Public Offering of shares for Sunrise Bank, one of the newest commercial banks, has lured almost Rs 10 billion worth of applications -- around 30-fold more than the share offer. As per the existing rule, the entire sum of the subscribed amount has to be deposited with Nepal Rastra Bank (NRB) for seven days.
"The worrisome fact is that adequate funds are not becoming available even after a readiness to pay higher interest rates," said the Treasury Department chief of a leading commercial bank. "Apart from a few big and old banks, almost all banks, especially the newer ones, are bearing the brunt of the credit crunch," said the officer, requesting to remain unnamed.
As a result of the shortage of liquidity, which has been building up slowly for the last six months, interest rates both on deposits and lending have gone remarkably up recently.
"Interest rates on lending have been up by 1.5 -2 percent whereas deposit rates have increased by 3 percent compared to last year´s average," Sachin Joshi, president of Nepal Bankers´ Association, said.
Joshi said average lending rates, leaving out short-term export/import loans, have already crossed 10 percent and there are strong indications the rates will increase further in coming days. "Gone are the days when rates of personal finances were below 10 percent," he said.
Joshi says that NRB needs to change its policy related to repo -- buying of treasury bills held by banks to inject additional liquidity into the market -- and intervention in the foreign currency market. "There is a need to introduce a two-way quote system while buying and selling foreign exchange," he said
Implementation of repo needs to be more frequent and intervention in the foreign currency market should be increased from the existing twice a week, Joshi said.
