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Company News
Deposits in FIs from FIs dips 100 fold
Thursday - 29th December, 2011 | www.thehimalayantimes.com |
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The balances held by financial institutions in other financial institutions have declined 100 fold as the central bank has prohibited to park money interest yielding deposits.
Since mid-July, the deposits held in other financial institutions have gone down by Rs 88 billion. In the beginning of the fiscal year the balances held by financial institution in other financial institutions stood at Rs 96 billion have gone down to Rs 8.3 billion by mid-November.
The financial institutions have reduced parking their money in other financial institutions following the central bank’s decree to close down the interest yielding deposits by the first half of the current fiscal year. Though there is no restriction on holding interest free accounts.
“The financial institutions have reduced holding deposits in other financial institutions as per the central bank’s decree to prohibition on interest on those kinds of deposits,” expressed Rajendra Man Shakya, president of Nepal Finance Companies Association. In August, Nepal Rastra Bank (NRB) had asked the financial institutions to close down interest yielding deposits in other financial institutions by the mid-January to prevent asset mismanagement.
“The financial institutions had developed a penchant of depositing their money longer period but borrow with others for short-term which has created asset mismatch creating liquidity crisis, this provision aims at avoiding such occurrences,” said Bahskar Mani Gyanwali, spokesperson at NRB.
Commercial banks have reduced the deposits from Rs 2.8 billion in the beginning of the year to Rs 24 million by mid-November. Likewise, development banks have reduced their holdings to Rs 3.8 billion from Rs 36.8 billion and finance companies have diminished deposits in other financial institutions to Rs 3.9 billion from Rs 52 billion in the four months period. Microfinance development banks have also cut the deposits in other financial institutions to Rs 540 million from Rs 4.8 billion in the review period.
However, the provision has dried one of the income sources for the financial institutions– especially small development banks and finance companies.
“Finance companies were earning little through interest earned by parking their idle funds collected paying higher interest to the depositors but the provision has contracted that income source,” pointed out Shakya. He also expressed the absence of viable projects to lend the funds that has contracted the income source for the finance companies.
“There are not much projects in real sector where we can finance and the government priority sectors do not offer much return,” he said. |
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