Surprising rise in loans during the celebration
Disasters including rain, floods, landslides, etc. had an impact on the private sector's credit disbursement before to Dashain. In previous years, the holiday season saw an uptick in credit flow, which aided in maintaining the economy. But this year's loan disbursement did not rise as anticipated. The terrible natural disaster that occurred prior to Dashain is thought to be the primary cause of this.
According to stakeholders, this year's demand for loans from the private sector is much lower than in previous years because of issues with importing groceries and clothing for Dashain shopping. The devastation not only caused the route to be closed, but it also resulted in a significant loss of wealth for many people.
The National Bank's most recent data indicates that there is a 13 trillion 58 billion rupee discrepancy between savings and loans in the system. In the past, lending increased dramatically during the holiday season in addition to deposits. The private sector used to request loans more frequently during the festival because there are more commercial activity during that time. Consequently, banks and other financial organizations were forced to consider making loans. That isn't the case right now, though. Because of the calamity, the private sector is having difficulty importing, storing, and marketing commodities; as a result, businessmen claim they are unable to request financing. They know that the event is empty this year.
Analraj Bhattarai, a former banker and industry specialist, stated that the catastrophe did not result in an increase in the amount of loans given to Dashain. He asserted that the private sector could not demand credit, even if it so desired. "It was once said that festivals boost the economy and increase credit flow," he remarked. But this time, the demand for loans won't rise because of the disaster that occurred prior to Dashain. Although the catastrophe is the primary cause, he thinks there are regulatory reasons why the credit flow has not increased. According to him, it is impossible to predict if the economy would grow over the next six months. "It appears that the economy will not be able to function for at least six months," he stated. The pace at which the economy grows will depend on the next economic climate.
Banks and other financial institutions have collected more than 66 trillion rupees in deposits. Deposits are rising together with the increase in remittances intended for the celebration. As to the Central Bank's statement, the system has accumulated deposits worth 66 trillion 25 billion rupees at now. Just in commercial banks, there are deposits totaling 58 trillion 99 crores. In a same vein, deposits of 7 trillion 27 billion rupees have been received by development banks and financial organizations.
The total amount of loans extended by banks and other financial organizations is 52 trillion 67 billion rupees. Commercial banks have given loans totaling 46 trillion rupees out of this. Loans of six trillion four billion rupees have been given by development banks and financial corporations. The most recent data indicates that there is a 13 trillion 58 billion rupee discrepancy in the system between deposits and loans.
Ninety percent of total deposits may be lent by banks. Currently, nevertheless, banks' credit deposit ratios (or CD ratios) stand at 78.15 percent. Based on this, the banks' investment resources total approximately 7 trillion rupees. It was previously anticipated that credit investment would increase at the start of the current year because of the flexible monetary policy. Loans, it appears, have not, thus far, been comparatively invested in. According to experts, the economy won't pick up speed until later because loan investment cannot rise, not even during holidays like Dashain.
It was recently assessed that the environment is becoming more favorable for loan investment. Falling interest rates served as the primary foundation for that. Nevertheless, lenders assert that despite the interest rate dropping to single digits, there has been no increase in demand for loans. The private sector has also argued that more market demand and a reduction in interest rates are necessary because without them, businesses would be unable to request loans. Thus, they claim that the demand for loans has not risen in line with expectations.
According to the data, loans are growing at a slower rate than deposits. Loan defaults are rising quickly despite an increase in deposit collection. Through monetary policy, the central bank set a goal to increase loans from banks and other financial institutions to the private sector by 12.5% in the current year. The monetary policy had established that target with the hope that it would eliminate the economy's laxity, lower the high interest rate, enhance the investment climate, and boost the spirits of both the public and private sectors. However, it appears that the loan has not increased significantly as of the end of the first quarter of this year.
Permanent deposit facilities (SDF) have been maintained by banks because it doesn't seem like there will be any more loan expansion until Dashain. Banks have been investing more in short-term products in an effort to control the system's excess liquidity. Just last Sunday, banks utilized a total of 1,69 billion rupees SDF. For a duration of 21 days, 40 billion rupees were stored in deposit collection equipment on Monday.
During the holidays, banks will invest in short-term equipment to offset their losses because there is no demand for loans. Interest on investments made by banks in short-term instruments is three percent. Banks used permanent deposit facilities valued at 67 trillion 46 billion 75 crore rupees and deposit collecting facilities valued at 7 trillion 44 billion 15 crore rupees from the start of the current fiscal year till October 21st.
