October 5: Deposit collection of commercial banks has reached an all-time high but the banks are still lacking lendable money. 

Until the end of September, the total deposits of commercial banks reached Rs 421 billion, which is the highest so far. Banks had collected deposits of Rs 411 billion until mid-July. The deposit collection had declined with the start of the new fiscal year which now has reached a record high. Due to declining deposit collection, banks have been experiencing liquidity crunch since the beginning of the current fiscal year. 

"At present, the demand for loans is very high. So despite the increase in deposit collection, the problem of liquidity crunch still exists," informed Bhuwan Dahal, chairman of Nepal Bankers' Association.  As the government has started spending, deposit collection of banks has started increasing. There has been a rise in the volume of remittances as well. Demand for loans is very high now. At the same time, the flow of credit has also increased. That is why the shortage of liquidity continues," Dahal said. 

The volume of imports is also increasing due to the festive season. Import is likely to further increase and in order to meet the increasing demand of import, the importers have been demanding more loan at the moment. As a result, liquidity crunch persists. 

Dahal says remittances will be a major means of managing liquidity.  Remittance inflows have increased since last week. If the expected amount of remittances comes, the problem of liquidity shortage will be solved. 

According to Dahal, with the increase in remittance inflow, the balance of payments and foreign exchange reserves will also improve. In that case it will be easier to review interest rates as well. 

Deposits of Rs 38.12 billion have been collected in the last week alone which is the highest increase in a week. Banks had raised interest rates on deposits from September 17 due to lack of liquidity. However, deposit collection did not improve right after the increase in the interest rate. In that week only eight billion rupees of deposits had been collected. However in the next week, the deposit collection increased significantly. 

Government spending is a major source of bank deposits.  The government spending was halted until the third week of September as the replacement budget couldn't be passed in the parliament due to CPN-UML's obstruction. After the bill was passed, government started spending which resulted in a rise in the deposit collection.

Along with the deposit collection, loan disbursement has also increased. In the last week, banks have extended loans of Rs 39 billion. The overall lending of commercial banks has reached Rs 394 billion.