Cash transactions with BFIs increase by a notable amount while banks are with cushion of liquidity

Published On: May 25, 2023 08:00 AM NPT By: Republica | @RepublicaNepal

KATHMANDU, May 25: Cash transactions in the domestic market, which had plunged by a notable amount amid the ongoing recession, have increased in the past one and a half months.

The records with Nepal Rastra Bank (NRB) show that the financial transactions have increased since the beginning of the Nepali New Year 2080 that fell on April 14. After the end of the Dashain and Tihar festivals in November 2022, the cash transactions started to plunge in the economy.

The cash transactions went to as low as Rs 3.60 billion in one month during mid-March and mid-April. However it escalated to Rs 12.10 billion in the consecutive month, according to the central bank.

The record of the National Statistics Office (NSO) shows the economic growth dropped by 0.34 percent in the first quarter (mid-July 2022 to mid-October 2022), the economy dropped by 0.73 percent during the second quarter (mid-October 2022 to mid-January 2023).

The data prepared by NSO based on the actual calculation of the third quarter and the estimated economic activities of the fourth quarter showed an economic growth of 2.16 percent.

As the country entered into a cycle of economic recession the transaction in the financial market was adversely affected. The BFIs had been facing a liquidity crisis, while the commodity and stock markets reeled under the heavy downturn.

For the past few months, Nepali domestic market has been sustaining recession while transaction also fell by a heavy amount, according to traders. Although the new development is a positive sign that the country might be recovering from the economic slowdown, economists cautioned about the possible drain out of cash from the banking system with an increased financial transactions.

Meanwhile, the deposit collection of the banks and financial institutions (BFIs) crossed Rs 5.50 trillion, while the lending amount hit Rs 4.846 trillion. Due to a surge in deposit collection and slow lending, the credit-deposit ratio has reached 84.74 percent, against the mandatory threshold of 90 percent.