Commercial banks received deposits of Rs. 37 billion in the last two months of the last fiscal year sending total deposits soaring to Rs. 617 billion at yearend.

As of the first 10 months of the current fiscal year, deposits amounted to Rs. 580 billion pointing to an improving liquidity situation in the banking system.

According to Nepal Rastra Bank (NRB), interest deposits of banks alone shot up to Rs. 7 billion in the two months. “This shows a rising tendency of deposits due to a hike in interest rates by banks,” said a senior NRB official.

The rise in deposits has been termed encouraging by central bank officials. Deposits had gone down to Rs. 586 billion in the third quarter of the last fiscal year from Rs. 586.56 billion in the second quarter.

Sashin Joshi, president of the Nepal Bankers Association, expressed surprise at the heavy rise in deposits. “As of July 9, deposits in commercial banks amounted to just Rs. 604 billion,” he said.

He added that there was no need to be overjoyed with the rise in deposits as it remained

to be seen if the trend would last.

According to him, deposits might have gone up lately due to the government’s sanctioning more budget for development projects. Government officials said that about Rs. 15 billion went for payments to projects and government employees in the second half of June.

Bodh Raj Niraula, joint secretary at the Finance Ministry, said that such money goes into the banking system from the government’s treasury. The last month of the fiscal year is when payment is made to projects and employees.

Despite the surge in deposits, they have remained lower than credit. Deposits grew by 14 percent while the credit growth rate stood at 19 percent the last fiscal year. After the central bank restricted loans to the real estate sector and took stringent measures to discourage gold imports, lending decreased in the second half of the last year.

Total credit reached Rs. 465 billion in mid-July compared to Rs. 466 billion in mid-January. Credit had gone up to as high as Rs. 470 billion in mid-February.

With decrease in credit, credit and deposit ratio  also went down to 81 percent from around 89.1 percent in the 10th month.

source: Kathmandu Post (2010),"Interest rate sends deposits rocketing ", The Kathmandu Post, 19 July 2010