KATHMANDU, Sept 22: It has been revealed that commercial banks have collected Rs 26 billion in deposits in the last one week at a time when the financial institutions are expected to face a liquidity crunch.

However, it is not clear whether such deposit growth is short- or long-term. Bankers say that the liquidity crunch in the banks and financial institutions (BFIs) will be resolved by the government's capital budget expenditure.

Even after two months of the current fiscal year, the government has not been able to spend the budget, which is said to have contributed to the liquidity crisis. In the years before the COVID-19 pandemic affected the country, BFIs used to face a liquidity crunch only after the festive season.

This problem is expected to increase in the second half of the current fiscal year as the signs of a liquidity crunch have already been seen before Dashian, a Hindu festival celebrated by a majority in Nepal. "The government has no choice but to accelerate the rate of capital budget spending to reduce the liquidity crunch," said a banker. Last year, more than Rs 200 billion of liquidity was accumulated in the banking system when the COVID-19 pandemic hit. "Even though the deposit collection has increased in the last one week, it is still very less in the current market," said the chief executive officer of another commercial bank. “We have not been able to arrange deposits due to the rising demand for loans.”

According to Nepal Bankers' Association (NBA), deposits, which declined by Rs 7 billion in the third week of August, increased by Rs 26 billion in the third week of September. Deposit collection had increased by Rs 8 billion in the last week of August and by Rs 4 billion in the second week of September.

According to the NBA, along with deposit collection, investment also increased during this period. In the third week of September, these banks invested Rs 28 billion in the form of loans. In the second week of August, banks invested Rs 25 billion in loans.

As per the data released by the NBA on Tuesday, commercial banks have collected Rs 4.171 trillion in deposits and invested Rs 3.872 trillion as of September 16. Bankers say that most of the banks are facing problems in expanding their business and managing the cash reserve ratio (CRR) due to the liquidity crunch.

Bankers say that the interbank rate has reached five percent due to the liquidity crunch. 

 
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