CNI urges PM to curb rife credit rate hikeA delegation of Confederation of Nepalese Industries (CNI) on Monday urged Prime Minister Sher Bahadur Deuba to introduce measures to control rampant hike in lending rates.
A delegation of Confederation of Nepalese Industries (CNI) on Monday urged Prime Minister Sher Bahadur Deuba to introduce measures to control rampant hike in lending rates. The delegation led by CNI President Hari Bhakta Sharma said that runaway credit rates were eroding competitiveness of the private sector.
“If this continues, the cost of doing business will soar in the country, making Nepal unable to compete with neighbouring countries in production of goods and services,” said the head of the private sector umbrella body.
In response, Prime Minister Deuba said he would discuss this issue with concerned authorities and come up with a solution.
Credit rates are soaring lately as banks and financial institutions are seeing rapid depletion in the stock of funds that could be immediately extended as loans.
Commercial banks attracted around Rs106 billion in deposits from the beginning of this fiscal year in mid-July till December 30, show the data of the Nepal Rastra Bank, the central bank. Credit disbursement, during the same period, stood at Rs167 billion. The mismatch in deposit collection and credit disbursement has reduced liquidity at banks. One of the ways to bring the situation under control is to increase deposit stock. Currently, banks are offering deposit rates of up to 12 percent per annum in a bid to attract depositors. Yet this has not helped banking institutions because inflow of remittances, one of the biggest sources of deposit, has started contracting. The inflow of remittance dropped by 1.4 percent to Rs228.95 billion in the first four months of the current fiscal year. The central bank has said remittance inflow may further shrink in the coming days as remittance growth rate has hit a saturation point due to continuous fall in number of Nepalis leaving the country for employment purpose. This means deposit stock will not grow in a substantial manner in the coming days.
This has prompted some of the banks and financial institutions to cut back on lending, while others are rapidly increasing credit rates.
Banking institutions are taking these measures as they expect around Rs60 billion to exit the banking system when first instalment of income tax has to be paid to the government in mid-January. This money will be locked up in state coffers unless government ramps up its spending.
“Nepal faced similar situation last year. But following central bank’s intervention, credit rates had started moderating,” said Sharma.
As the situation is becoming “severe”, banks and financial institutions are now demanding that the government ramp up its spending, especially capital spending. The government’s capital spending stood at 12.2 percent of the total allocation
of Rs335.2 billion as of January 1. Because of slow capital spending, the treasury surplus now hovers around Rs328 billion. If this money, according to bankers, is gradually spent, pressure would ease on banks and financial institutions.