One particular commercial bank is giving well-established financial institutions, like Nabil, Nepal Investment and Himalayan, a run for their money, as it has adopted aggressive strategies to expand its deposit and credit portfolios.

The bank’s audacity has certainly benefited its clients, as some of the mandatory processes to obtain loans have been removed, certain fees have been waived and better deposit rates have been offered. But if the same strategy is mimicked by other institutions, the country’s financial sector, bankers fear, will see a cut-throat competition in deposit collection and credit disbursement, which may destabilise the entire banking sector and push the country to the brink of a financial crisis.

This particular bank, whose name cannot be disclosed due to the central bank’s request, added Rs32.1 billion to its deposit portfolio since the beginning of the fiscal year on July 16 till December 31, show the data of the Nepal Rastra Bank (NRB), the central bank. This accounts for 28.5 percent of total deposit of Rs112.7 billion collected by all 28 commercial banks in the five-and-a-half-month period.

The bank also disbursed Rs28.3 billion in loans in the same period. This figure is 16.9 percent of the total credit of Rs167.4 billion provided by all commercial banks during the five-and-a-half-month period.

The expansion in deposit and credit portfolios of the bank has made it the third largest financial institution in the country in terms of credit portfolio and fourth largest in terms of deposit collection, show the NRB data. This is a meteoric rise for an institution which was ranked ninth in terms of the stock of loans and deposit as of July 16.

Bankers are worried by the bank’s aggressiveness as it comes at a time when the banking industry is facing severe shortage of funds that could be immediately extended as loans due to mismatch in deposit collection and credit disbursement.

Banks are allowed to lend up to 80 percent of their total local currency deposit and core capital combined. But lately deposit growth has virtually stalled due to fall in remittance income and slow government spending, whereas credit demand has been going up due to gradual improvement in the business climate.

This has prompted banking institutions to poach deposit from other financial institutions so as to enhance their credit disbursement capacity. Hence, it is hardly surprising that deposit portfolio of at least seven banks have shrunk in the range Rs62.8 million to Rs6.6 billion since July 16.

Bankers that the Post talked to called this “a zero sum game”. And the lead player of this game, according to them, is “that particular bank” which has seen abnormal hike in deposit collection and credit disbursement.

So is this bank posing a threat to the banking industry?

“Probably not, because different banks pursue different strategies; and there is nothing called right or wrong here,” said Anil Shah, former CEO of Mega Bank, who is joining Nabil Bank soon. “However, if there are evidences that prove that one financial institution is skewing the entire banking sector, the regulator must intervene.”

Bankers have said that intervention must be made immediately, because the bank, according to them, is promoting “unethical banking practices, such as lending below the base rate”, which goes against the central bank’s directives.

Central bank Spokesperson Narayan Prasad Paudel acknowledged that the bank has been expanding its business aggressively. “But that’s its strategy and we cannot say anything unless it breaches our regulations, which it has not done so far,” Paudel said. “However, we are closely monitoring its activities and will take action if it engages in unethical practices.”

The Post tried to talk to the bank’s CEO but he did not respond to the call.