KATHMANDU, MAY 10 - 2013
Amid tightening liquidity situation in the banking system, institutional depositors are making it hard for banks and financial institutions (BFIs) to get deposits at cheaper rates.
While BFIs themselves are offering higher interest rates—over 10 percent—to attract institutional depositors, the latter are demanding even more. They said the demand for funds from BFIs has increased massively in recent days.
One of the biggest institutional depositors, Employees Provident Fund (EPF), has been taking a stance that it will deposit its money only in banks that agree to offer 11 percent interest. “Our position is it (the interest rate) has to be 11 percent,” said EPF Administrator Krishna Prasad Acharya. “We accepted six percent interest rate when there was high liquidity in the banking system.”
According to Acharya, banks are offering up to 10.75 percent interest. The EPF has deposited more than Rs 25 billion in commercial banks. As newer banks are largely dependent on institutional deposits, they become ready to pay whatever demanded by institutional depositors.
As per the latest Nepal Rastra Bank (NRB) statistics, fixed deposits account for 41.3 percent of BFIs’ total deposits, and a major proportion of the fixed deposits come from institutional depositors. As of mid-March, total fixed deposits in BFIs stood at Rs 377.86 billion.
Besides EPF, other institutional depositors are also negotiating for higher interest rates. Citizens Investment Trust (CIT) is not depositing its money in banks that offer less than 10.75 percent interest. “Banks are offering up to 10.75 percent interest, and we have taken a policy of charging the same rate to all banks that seek our deposits,” said CIT Exe-cutive Director Rishi Ram Gautam.
The CIT has deposited more than Rs 17 billion in BFIs and it deposits a maximum of Rs 200 million in a single bank at a time. However, it has also adopted a policy of depositing up to Rs 1 billion in a single commercial bank, according to Gautam.
Bankers said the government’s failure to spend development budget forced them to offer higher interest rates on deposits. As of mid-April, Rs 57 billion has been stuck at the government’s treasury, which has not come into the banking system.
“The government should either spend the budget or the central bank should reduce the statutory liquidity ratio, cash reserve ratio or credit-to-deposit ratio to ease the current liquidity crunch,” said Commerz and Trust Bank CEO Anal Raj Bhattarai.
Commerz and Trust has also increased its interest rate on fixed deposit to 9.5 percent from 8 percent, while that on saving deposits has been increased to 8 percent from 6 percent. “If the situation does not improve within a month, we will be forced to increase the interest rate on lending too,” Bhattarai said. “We are waiting for the government to expedite spending which will ease the liquidity situation.”
On Thursday, the inter-bank lending rate was at 5.5 percent. Credit-to-deposit ratio of a few banks has crossed 80 percent, with credit increasing by 16.5 percent compared to deposit growth of 6.5 percent.
Excess cash reserve of commercial banks at the central bank has remained at Rs 8.8 billion, according to an NRB official, which used to be around Rs 50 billion when banks were flooded with liquidity.
“Net liquid asset has come down to 30 percent in recent days from 34 percent a few months ago, which is a clear sign of the tightness in liquidity,” said the central bank official.
Net liquid assets includes assets such as cash (and equivalents), stocks, bonds and bank deposits after deducting liabilities.
Source: The Kathmandu Post
Amid tightening liquidity situation in the banking system, institutional depositors are making it hard for banks and financial institutions (BFIs) to get deposits at cheaper rates.
While BFIs themselves are offering higher interest rates—over 10 percent—to attract institutional depositors, the latter are demanding even more. They said the demand for funds from BFIs has increased massively in recent days.
One of the biggest institutional depositors, Employees Provident Fund (EPF), has been taking a stance that it will deposit its money only in banks that agree to offer 11 percent interest. “Our position is it (the interest rate) has to be 11 percent,” said EPF Administrator Krishna Prasad Acharya. “We accepted six percent interest rate when there was high liquidity in the banking system.”
According to Acharya, banks are offering up to 10.75 percent interest. The EPF has deposited more than Rs 25 billion in commercial banks. As newer banks are largely dependent on institutional deposits, they become ready to pay whatever demanded by institutional depositors.
As per the latest Nepal Rastra Bank (NRB) statistics, fixed deposits account for 41.3 percent of BFIs’ total deposits, and a major proportion of the fixed deposits come from institutional depositors. As of mid-March, total fixed deposits in BFIs stood at Rs 377.86 billion.
Besides EPF, other institutional depositors are also negotiating for higher interest rates. Citizens Investment Trust (CIT) is not depositing its money in banks that offer less than 10.75 percent interest. “Banks are offering up to 10.75 percent interest, and we have taken a policy of charging the same rate to all banks that seek our deposits,” said CIT Exe-cutive Director Rishi Ram Gautam.
The CIT has deposited more than Rs 17 billion in BFIs and it deposits a maximum of Rs 200 million in a single bank at a time. However, it has also adopted a policy of depositing up to Rs 1 billion in a single commercial bank, according to Gautam.
Bankers said the government’s failure to spend development budget forced them to offer higher interest rates on deposits. As of mid-April, Rs 57 billion has been stuck at the government’s treasury, which has not come into the banking system.
“The government should either spend the budget or the central bank should reduce the statutory liquidity ratio, cash reserve ratio or credit-to-deposit ratio to ease the current liquidity crunch,” said Commerz and Trust Bank CEO Anal Raj Bhattarai.
Commerz and Trust has also increased its interest rate on fixed deposit to 9.5 percent from 8 percent, while that on saving deposits has been increased to 8 percent from 6 percent. “If the situation does not improve within a month, we will be forced to increase the interest rate on lending too,” Bhattarai said. “We are waiting for the government to expedite spending which will ease the liquidity situation.”
On Thursday, the inter-bank lending rate was at 5.5 percent. Credit-to-deposit ratio of a few banks has crossed 80 percent, with credit increasing by 16.5 percent compared to deposit growth of 6.5 percent.
Excess cash reserve of commercial banks at the central bank has remained at Rs 8.8 billion, according to an NRB official, which used to be around Rs 50 billion when banks were flooded with liquidity.
“Net liquid asset has come down to 30 percent in recent days from 34 percent a few months ago, which is a clear sign of the tightness in liquidity,” said the central bank official.
Net liquid assets includes assets such as cash (and equivalents), stocks, bonds and bank deposits after deducting liabilities.
Source: The Kathmandu Post
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