Deposits in co-ops more than doubled last fiscal

While banks and financial institutions (BFIs) struggled to attract deposits, people’s deposits in cooperatives more than doubled in the last fiscal year.

Cooperatives are holding deposits of Rs 150 billion as of the last fiscal year, up from Rs 70 billion a year ago, according to the Department of Cooperatives. The figure is 95 percent of the total deposits being currently held by A, B and C class BFIs. Besides deposit collection, there has also been a significant growth in cooperatives’ investment. Their lending grew to Rs 105 billion last year from Rs 43.46 billion in the previous year.

The whopping growth in deposits of cooperatives illustrates the fact what bankers were speculating—diversion of deposits to cooperatives from BFIs.

Although deposits are coming back to commercial banks lately, B and C class FIs are yet to see rise in their deposits, said a senior Nepal Rastra Bank (NRB) official. Of late, B and C class FIs are losing public confidence with some of them landing in trouble.

Finance companies also admit that their deposits moved to other areas. “Due to recent turmoil in finance companies as a result of liquidity crunch and governance related issues, a huge chunk of deposits shifted to other FIs from finance companies,” said Rajendra Man Shakya, president of Finance Companies’ Association of Nepal.

Bankers claim that the income source disclosure provision led people to divert their deposits to cooperatives. “It could be one of the reasons behind the deposit diversion,” said NMB Bank CEO Upendra Poudel.

The budget for the current fiscal year has replaced the income source disclosure provision with negative declaration.

Poudel, however, said the diversion of deposits to cooperatives may have affected saving deposits in banks, but not the system, as cooperatives put these deposits in their call accounts in banks.

Saving and credit cooperatives are the biggest receivers of public deposits. As of mid-March, such cooperatives held Rs 97.49 billion, while total deposits in all types of cooperatives stood at Rs 130 billion.

There are a total of 22,646 cooperatives in the country, of which 10,558 are saving and credit, 4,096 multipurpose, 3,144 agriculture, 1,748 dairy and 1,379 consumer. Likewise, there are 371 cooperatives in electricity production, 161 in vegetable and fruits production, 104 in tea production, 67 in coffee production, 61 in health sector, 51 in honey production, 73 in herbal production and 833 in other categories.

DoC statistics show that 2,922 new cooperatives were registered last year.

Of late, cooperatives have also come up in many productive and social sectors. “Many cooperatives are being operated in the areas like processing industries, cold storage, hospital, hydro power and tourism,” said DoC Registrar Sudarshan Dhakal. “The sector is expanding due to strengthening of central cooperatives associations, capacity building and large amount of investment.” The government has also prioritised cooperatives naming the sector one of three pillars of the economy.