In an indication that the liquidity situation has eased, commercial banks are increasingly providing inter-bank loans to B and C class financial institutions (FIs). Such is the rise that inter-bank loan taken by FIs from commercial banks is double of the transaction among commercial banks, according to Nepal Rastra Bank (NRB).
“About two dozen B and C financial institutions are receiving loans from commercial banks daily, while inter-bank lending is being done only a dozen times among commercial banks,” said Bhaskarmani Gyawali, spokesperson for the central bank. “Such a trend is being seen for the last two months,” he added.
According to NRB officials, B and C class financial institutions have received loans worth around Rs 1 billion from commercial banks over the period.
In the wake troubles in some of B and C class FIs due bad corporate governance and acute liquidity crunch, commercial banks had almost stopped lending to them until two months ago. The central bank then called a meeting of A, B and C banks and financial institutions (BFIs) to ease inter-bank loans. As per the demand of FIs, NRB on June 27, allowed them to get inter-bank loans by putting up good loans and other types of assets (mainly fixed assets) as collateral for a period of six months. As per the earlier provision, inter-bank loans used to mature in a week.
According to NRB Deputy Governor Maha Prasad Adhikari, banks are providing finance to FIs under this new window along with regular means of inter-bank loans.
However, BFI officials said the lending has not been on a large scale. “I don’t have any reporting of finance companies taking inter-bank loans from commercial banks,” said Rajendra Man Shakya, president of Finance Companies’ Association. “What I have is the reporting of finance companies—which sought inter-bank loans under the new window of NRB—that they are yet to receive the loans.” However, the NRB spokesperson stood by his statement. “Given the sensitivity of the issue, many BFIs are not coming open regarding inter-bank lending transactions,” said Gyawali. “It is real that there have been good transactions between commercial banks and financial institutions.”
With commercial banks witnessing strong growth in deposits in recent months, most of them are in a position to lend, according to NRB officials. On the other hand, worsened image of FIs resulted in diversion of deposits to A-class banks.
Many bankers were of the opinion that inter-bank lending between commercial banks and other FIs has happened, but on a small scale. NIC Bank CEO Sashin Joshi said he do not believe that so many FIs received inter-bank loans. “The volume of transactions must be small,” he said.
Similar was the view of Nepal Investment Bank Executive Eirector Prithvi Bahadur Pande. “I don’t think there has been big inter-bank lending with B and C class FIs.”
However, Development Bankers’ Association President Manoj Goyal has a different take. “Given abundant resources with commercial banks, B and C FIs might have received inter-bank loans as they offer higher interest rate,” he said.
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