Credit to production sector drops

The credit to production sector has dropped, according to the central bank.

Credit to the production sector has increased by 9.5 per cent in the first eight months of the current fiscal year compared with a growth of 12 per cent in the same period last fiscal year. "Sugar, Cement, Iron and Steel industries witnessed significant Credit expansions under the industrial production sector credit," according to the central bank.

Similarly, credit to agriculture sector increased by Rs 2 billion. Credit to wholesale and retail business as well as finance, insurance and fixed assets; and service sectors increased by 23.2 per cent, 41.6 per cent and 20.2 per cent, respectively. "Credit to these sectors during the same period last fiscal year had increased by only 10.1 per cent, 23.6 per cent and 11.9 per cent respectively," said the Nepal Rastra Bank (NRB). Credit to real estate sector has, however, doubled as it has increased by Rs 14.9 billion in the first eight months compared with Rs 7.7 billion in the same period a year ago.

Similarly, deposits mobilisation of commercial banks has increased by 4.2 per cent (Rs 22.9 billion) amounting to Rs 572.7 billion as of mid-March.

According to the central bank, the first eight months of the current fiscal year witnessed a total deposits increment by 14.3 per cent (Rs 60.2 billion) in comparision to the same period last year. "Similarly, private sector credit of commercial banks grew, though nominally, by 16.5 per cent -- Rs 66.7 billion -- compared to a growth of 16.3 per cent -- Rs 50 billion -- in the same period last fiscal year.

Similarly, the liquid assets of the commercial banks stood at Rs 167.9 billion as of mid-March. However, of the components of liquid assets, liquid fund declined by 9.7 per cent. A decline in commercial banks' balance with the NRB as well as balance held abroad accounted for a contraction of liquid funds of commercial banks. In the review period, the balance held abroad declined by Rs 4.3 billion amounting to Rs 49.2 billion while the balance with NRB declined by Rs 10.1 billion, the central bank said.

Similarly, commercial bank' investments in government securities declined by 12.3 per cent (Rs 8.8 billion). "The higher growth of commercial banks' loans and advances relative to their deposit mobilisation has changed their liabilities/assets structure," said the report.

Loans and advances of commercial banks increase by 11.8 per cent (Rs 60.9 billion). As a result, the credit-deposit (CD) ratio increased to 90.2 per cent by mid-March from 81.2 per cent a month ago. Increase in CD ration is not a good sign.

Similarly, the liquidity-deposit ratio declined to 29.3 per cent in mid-March 2010 from 34.2 per cent in mid-July 2009.

The NRB has injected net liquidity amounting to Rs 69.1 billion in the banking channel. During the period, Rs 7.4 billion and Rs 1 billion were mopped up through outright sale auction and a reverse repo auction respectively, while Rs 74.2 billion and Rs 3.4 billion were injected through repo and outright purchase auction respectively.

In the same period last fiscal year, net liquidity amounting to Rs 11.7 billion was mopped up. "Of the total liquidity mopped up, Rs 7.5 billion and Rs 13.2 billion were mopped up through outright sale auction and reverse repo auction respectively, while Rs 9 billion was injected through outright purchase auction," said the central bank.

Meanwhile, NRB injected net liquidity amounting to Rs 55.2 billions through net purchase of $733.2 million from commercial banks. A net liquidity of Rs 97.2 billion was injected through the net purchase of $1.3 billion in the same period last year.

The NRB purchased Indian currency equal to 63.6 billion through the sale of $1.4 billion in the Indian money market. Indian currency equal to 47.8 billion was purchased through the sale of $1 billion in the same period last fiscal year. "An accelerated trade and payment deficits with India accounted for such a higher volume of Indian currency purchase," said the bank.