Half of commercial banks struggle to bring CD ratio below mandatory 90% as fiscal year nears end – myRepublica

KATHMANDU, June 28: Banks and financial institutions (BFI) have collected deposits of Rs 5 billion over the past month. This, however, failed to allow nearly half of the banks to comply with the mandatory credit-to-deposit ratio (CD ratio) rule imposed by the regulator.

According to the Nepal Rastra Bank (NRB), deposit collection from CIBs hit 4.987 trillion rupees on Sunday, up from 4.982 trillion rupees till last month. CIBs provided Rs 4.705 billion in loans.

Commercial banks’ deposit collection alone reached Rs 4,401 billion. They provided loans of Rs 4.178 trillion, down Rs 1 billion during the reporting period.

With an increase in deposit collection relative to loan issuance, some banks were able to keep their CD ratio within the limit. Currently, the average CIB CD ratio stands at 89.26%, compared to 89.37% a month ago.

Despite an improvement in the average statistics, around ten banks have still not managed to maintain the CD ratio. According to an NRB official, the CD ratio of some banks is still around 95%.

As part of the 2021/22 monetary policy, the NRB removed the rule of the credit-to-core capital plus deposit (CCD) ratio and replaced it with the CD ratio for CIBs. Under the new rule, CIBs must maintain the CD ratio at a cap of 90% while granting loans to their clients.

The central bank has given a year-end deadline for CIBs to keep the CD ratio within the prescribed limit. Most banks were now taking advantage of the leeway of the liquidity crisis to breach the regulator’s mandatory rule.

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