Wednesday, January 25, 2017

CNI urges central bank to hike CCD ratio, lower CRR

Against the International Monetary Fund (IMF) Article IV mission's prescription of not changing the CCD ratio, the Confederation of Nepalese Industries (CNI) has called on the central bank to increase credit to core capital-cum-deposit (CCD) ratio to 85 per cent until the time banks and financial institutions create adequate stock of loanable funds.
The IMF has said that hiking the CCD ratio – as asked by the bankers – will encourage financial indiscipline. Currently, the banks and financial institutions have to maintain CCD ratio at 80:20 meaning of every Rs 100 deposit they collect, they can only lend up to Rs 80.
The CNI has, however, asked the central bank to increase the CCD ratio to 85:15 from current 80:20.
"With deposit flow remaining comparatively lower, CCD ratio of some of the banks has exceeded 80 percent mark," according to the central bank data.
The body of manufacturing and services enterprises has also urged the central bank to reduce cash reserve ratio (CRR) for banks and financial institutions by a percentage point for the time being to enable them to extend loans.
Currently, commercial banks have to maintain CRR-portion of total deposit that needs to be parked at the central bank of 6 per cent, while development banks and finance companies have to maintain CRR of 5 per cent and 4 per cent, respectively.
Lately, some banks and financial institutions are facing severe shortage of funds that could be immediately extended as loans. Though, they are claiming of liquidity crunch, it is more of a credit crunch as they have almost no loanable funds at present.
Banks have collected fresh deposits of Rs 154 billion since the beginning of the current fiscal year from mid-July till January 13, according to the latest data of the Nepal Bankers’ Association (NBA). "But the credit flow stood at Rs 204 billion in the same period."
This mismatch in deposit collection and credit disbursement is the major reason for shortage of loanable funds.
Their aggressive lending on unproductive sectors – as the central bank claims – has sqeezed their lending capacity.
Saying that the current liquidity crunch has increased lending rates in the financial sector, the CNI said that higher lending rates will hit the economic growth.

No comments: