Despite their offer of lucrative interest rates, banks failed to attract deposits during the third quarter of the current fiscal year as compared to the second one.

Deposits in 26 commercial banks recorded a deficit of Rs. 730 million as deposits went down to Rs. 585.86 billion in the third quarter from Rs. 586.59 in the second. Credit growth also stagnated with a rise of Rs. 3.19 billion during the third quarter as credit went up to Rs. 466.95 billion from Rs. 463.76 billion. The deposit growth slowed in the first nine months of the current fiscal, but credits ballooned resulting in a liquidity crunch, especially in the first quarter.

From the first to the second quarter, deposits grew by just Rs. 9.83, while credits soared by Rs. 46.51 billion affecting the balance between deposits and credits. The deposit collection in the first quarter was Rs. 576.76 and the credit was Rs. 417.25. President of Nepal Bankers’ Association Sashin Joshi said the stagnation in deposits was the biggest challenge facing the banking sector. “This has also contributed in stagnating the flow of credits,” he said. “Political situation is of course responsible for this situation,” Joshi added. “The provision of disclosing the income source while purchasing plots of land, capital gain tax on realty transactions and the provision to disclose the source for deposits above Rs. 1 million in banks and financial institutions are other factors that have kept deposits at bay.”

He warned that the banks’ failure to lend as a result of liquidity crisis for a longer period would have a huge impact on the country’s economy. Among the banks that witnessed decline in deposits are Nepal Bank Limited (NBL), Nabil, NB, Standard Charted, NIC, Everest, Bank of Asia, Kumari, Lumbini, Rastriya Banijya Bank and Agriculture Development Bank Limited. Other banks have recorded a marginal increase in their deposits. Likewise, some banks have witnessed a decline in credit flow. Himalayan Bank, Machha-puchhre, Laxmi, NIC, Kumari, Nepal SBI Bank, Lumbini, Prime, Nepal Investment Bank (NIBL), Bank of Kathmandu and ADBL are the banks that witnessed the decline.

courtesy:The Kathmandu Post,May 22 2010