The renewed liquidity cruch means there will be no respite for borrowers: It´s unlikely the interest rates will go down anytime soon. [break]
Bankers said that the problem has surfaced mainly because the money that people withdrew during the Dashain festival is yet to come back into the banking system.
People had withdrawn some Rs 15 billion from banks during the festival. “Going by past experience a large amount of the withdrawn money should have been back in the system by now," said one banker. But only about Rs 4 billion is back so far.
That is, however, not the sole reason behind the crunch. Bankers finger lack of development spending in the absence of a full-fledged budget as the major contributing factor. The government would have spent some Rs 106 billion for the current fiscal year if it had presented a full-fledged budget.
“The government says it has no budget to spend for development. On the other hand, it is siphoning off money from the market in the form of revenue,” said Rajan Singh Bhandari, vice president of Nepal Bankers´ Association.
He argued that lack of public spending and growing revenue collection have created a significant mismatch. “This liquidity crunch is merely a reflection of that,” he said.
Apart from that, bankers said the latest circular by Nepal Rastra Bank (NRB) to take dirty and older bank notes out of circulation has also disrupted the circulation of cash in the system.
“Pre-budget psychology, especially as the government has said it will come up with a budget by mid-November, might have contributed also to the liquidity crunch,” said a banker who preferred to remain unnamed.
Irrespective of the causes, bankers said the situation has forced banks to turn to short-term financial sources to manage their liquidity position, against increased costs yet again. For instance, the inter-bank lending rate on Wednesday hovered in a range of 10.5 to 10.74 percent.
The inter-bank rate had reached as high as 13 percent when the banks plunged into the severe liquidity crunch of last year. But by September this year, when banks returned to normal operations, the inter-bank rate eased to as low as 3-4 percent. This had raised hopes among entrepreneurs and consumers that the banks might soon lower the lending rates.
“But the latest development in the market now suggests the situation will continue to remain otherwise,” said the source, pointing out especially that the problem with liquidity has continued despite the injection of Rs 5 billion into the market by NRB through repo over this month.
The banks, which did not face any problem in liquidity over the first two and half months of this fiscal year, had borrowed Rs 3 billion in repo just prior to Dashain. On Tuesday also, they had taken an additional Rs 2 billion in loans from NRB against the collateral of government securities, at the higher interest rate of 10.37 percent.
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