Rs 112 billion loanable funds sitting idle in 30 commercial banks

Kathmandu December 31- Over Rs 100 billion, which could be immediately extended as loans, is sitting idle in the coffers of commercial banks, as credit demand in the country has failed to pick up due to the unfavourable economic condition. Cash is piling up in the vaults of 30 commercial banks operating in the country because of the rise in the flow of money sent by Nepalis working abroad.

In the first four months of the current fiscal year alone (mid-July to mid-November), the country’s remittance income surged by 19.4 per cent to Rs 215.39 billion. This has pushed up deposit level at banks to Rs 1,531 billion as of December 18, show the latest data of Nepal Bankers’ Association (NBA).

Of the total deposits parked at banks, Rs 1,423 billion is in local currency and the remaining Rs 108 billion is in foreign currency. NRB allows banks and financial institutions to extend up to 80 per cent of the sum of core capital (capital fund) and total local currency deposit as loans.

The capital fund of commercial banks stood at Rs 149.69 billion as of mid-November. On the other hand, local currency deposit of these Class ‘A’ financial institutions hovered around Rs 1,423 billion as of December 18. This puts the sum of capital fund and total local currency deposit at Rs 1,572.69 billion.

This implies commercial banks can convert at least Rs 1,258 billion — 80 per cent of Rs 1,572.69 billion — into credit. But as of December 18, only Rs 1,146 billion was extended in loans.

This means banks are sitting on top of a whopping Rs 112 billion in funds that could be issued as credit. Inability to convert such a huge amount of funds into loans adds up to the cost of banks because they make a huge chunk of income by selling money bought from clients in the form of deposit. Source: THT