According to the banks, the current amount of loanable funds is about 50 crores. Businesses are facing difficulties due to the shortage of funds in the market. However, the banks are not eager to lend more money. The total deposit of banks is 51.53 crores, out of which 48.16 crores is loaned. The loan-to-deposit ratio is 86.54%. The interbank lending rate has been limited to 4.16%, which is less than the upper limit of 8.5%. However, the banks are not expanding their loan business in an aggressive manner. The president of Nepal Bankers’ Association and the CEO of Nepal Bank Limited stated, “Banks are still cautious and observant.”
The banks are currently facing difficulties in loan repayments. The National Bank has limited the amount of loan repayment to 11 arba rupees. Banks have now received equal amounts from the National Bank, which will be returned to the National Bank. Banks are still in a comfortable position for loan repayment, although banks have not increased their loan repayment. In the past, banks had a rise in bad loans, but they have become more conscious of increasing loan repayments.
In the past, banks were more cautious about increasing their bad loans and they also became more aware of the need to grant more loans. As bad loans increased, banks also started taking more precautions to manage risks, but even now banks are not granting loans in a free manner. Some banks are limiting the increase in loans based on the risk of their assets and primary capital, but others are not.
Banks limit the primary deposit based on the risk assets, meaning they cannot increase the limit beyond a certain percentage, usually 8.5%. When the risk assets increase, the burden of bad loans also increases.
Recently, the National Bank has been reducing loan interest rates. This is because the demand for loans has decreased. The National Bank has decided to only provide loans to businesses at a rate of 20-40% of the business’s income.
According to the officials of the National Bank, the banks have started to provide loans without any limit, but to prevent bad loans, they have started providing loans at a limited rate. This system has changed compared to the previous system, but the demand for loans has still decreased. This is why the National Bank’s efforts to reduce loan interest rates are ongoing.
The government has increased borrowing from the national bank and the national bank has increased the interest rate on loans. The national bank has directed the interest rate to be based on the difference between the interest rate set by the central bank and the interest rate set by commercial banks. Currently, the maximum interest rate is 8.5% with an upper limit of 4.16% set by the central bank. The national bank aims to reduce the interest rate on loans taken by the government, but so far the money has not been collected from the banking system. Some time ago, the interest rate on loans taken by the government was increased by two decimal points. “There has been a strategy to decrease it, but it hasn’t happened yet,” according to the research department of the national bank.