The limit has been extended by additional 30 percent to help ease the liquidity crunch seen in the banking system

KATHMANDU, Dec 21: The government has revised the ceiling of deposit, out of the grant amount being provided to the local governments, which the banks concerned have been using to maintain their credit-deposit (CD) ratio. The government’s move is aimed at easing the ongoing shortage of loanable funds in the country’s banking system.

The Ministry of Finance (MoF) recently wrote to Nepal Rastra Bank (NRB) to this effect, allowing banks to extend the ceiling. In the new provision, banks can now use up to 80 percent of the funds released by the federal government for the local governments in their CD ratio. As of now, banks have been permitted to use only 50 percent of such grant amount to maintain the mandatory threshold provisioned by the central bank.  

At present, most of the banks have crossed the NRB fixed limit of 90 percent on CD ratio. This has made the banks unable to issue new loans to their clients.

This year, the government has allocated a total fund of Rs 387.30 billion to the local governments. In the new provision, the banks will be available with additional funds worth more than Rs 100 billion to count in their deposit, allowing them to issue additional amounts in loans accordingly.   

According to the MoF, the new provision will be put into effect till mid-July 2022– the end of the current fiscal year. Similarly, the banks will be allowed to mobilize an additional amount created out of the extended ceiling only in the productive sector, but not to fund import and trading businesses.  

 
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