KATHMANDU, June 15: Unlike in the previous years when banking sector used to be awash with liquidity at least in the last quarter of fiscal, bank and financial institutions (BFIs) are not finding respite from the acute shortage of lendable fund in the current Fiscal Year 2018/19.

Against the expectations that there will be an ease in the liquidity situation in the last quarter when the spending of the government increases, the growth of deposit has not become adequate for banks. 

According to the data of Nepal Bankers’ Association (NBA), commercial banks added Rs 51 billion in deposits in the last two months of the fourth quarter of the current fiscal year to Rs 2,754 
billion, while their outstanding loans rose by Rs 46 billion between April 13 and June 7. The mismatch between the deposits and loans has led to the shortage of lendable funds in the banking sector. 

As the Nepal Rastra Bank (NRB) has fixed the credit to core capital plus deposit (CCD) ratio at 80 percent, the higher growth in the lending compared to deposit has led the CCD ratio of most of the banks toward the saturation point. As most of the banks are close to the upper limit of the CCD ratio, they have a very limited space for the expansion of their loans. 

According to the NBA, the CCD ratio of most of the commercial banks still hovers around 78 percent.

The high CCD ratio has not stopped banks from pursuing aggressive lending practices. “The problem in the current fiscal year is that banks continued to accept loan proposals and make commitments for the disbursement of loans,”

 said a banker. “Even when there are no or little financial resources, they have been making pledges with the expectation that there will be liquidity in the last quarter,” the banker added. 
Saroj Kaji Tuladhar, president of the Nepal Financial Institutions Association, admits that 
there exists such practice in the banking sector. 

“Banks tend to do financial closure for projects that they have on their plate. They should sign the loan agreement after considering their capacity,” he added. 

As the shortage of lendable fund continues, bankers say that there is slim chance of correction in the interest rates. Commercial banks still offer nearly 10 percent of interest rates on fixed deposits. 
Industrialists complain that they are bound to borrow at high interest rates from banks, which is increasing their cost of production and eroding their competitiveness.

 
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