Nepal Rastra Bank, the central monetary authority of the country, outrightly rejected the bankers’ demand to increase the ratio of credit to core capital cum deposit in order to ease the current situation of acute shortage of loanable funds within the banks and financial institutions.

Nepal Bankers’ Association (NBA)—the umbrella association of commercial banks in the country—had asked the Nepal Rastra Bank (NRB) to relax the credit to core capital cum deposit (CCD) ratio so that it would be easier for them to cope with the current situation where they are facing severe shortage of loanable funds that could be immediately extended as loan.

The CCD ratio imposed by the NRB for banks and financial institutions currently stands at 80 percent. This means banking institutions cannot extend more than 80 percent of the deposit and core capital as loans.

NRB Spokesperson Narayan Poudel told the Post that the bankers’ demand to increase the existing regulatory threshold of CCD ratio of 80 percent was not possible. “In the last couple years, the bankers have time and again asked us to increase the regulatory threshold of the ratio,” said Poudel. “But we are not in a position to address their demand as increasing the CCD ratio will expose the industry to systemic risk.”

He further said that the current shortage of loanable funds was due to the mismatch in deposit collection and credit disbursement by the banks and increasing the CCD ratio was not going to solve the problem.

 “The banks lent beyond their capacity,” said Poudel. “It is their responsibility to find an amicable solution to the existing problem.”  

During the first three months of the fiscal year, deposits of the 28 commercial banks operating in the country grew by Rs61.96 billion.

On the other hand, their combined lending increased by Rs157.19 billion, thanks to aggressive lending by the banks despite their inability to match such lending with deposit growth.

Currently, the CCD ratios of the majority of the banks have reached the regulatory threshold and are not in any position to increase the lending despite high demand of loans from the private sector.

The regulator, however, is considering providing relaxation to certain loans and advances made under concessional lending as per the NRB’s directive.

“We are planning to introduce the provision whereby the loans extended to the quake victims, young entrepreneurs, projects led by youths who have returned from overseas, women entrepreneurs and people from the Dalit community, among others will be excluded from CCD ratio calculation,” said Poudel.