Government allows banks to use up to 80% of funds provided to local governments in their CD ratio – myRepublica

The limit has been extended by an additional 30% to help ease the liquidity crisis seen in the banking system

KATMANDU, December 21: The government has revised the deposit limit, on the amount of the subsidy granted to local communities, which the banks concerned have used to maintain their credit-to-deposit (CD) ratio. The government’s move aims to alleviate the current shortage of loanable funds in the country’s banking system.

The Ministry of Finance (MoF) recently wrote to Nepal Rastra Bank (NRB) to this effect, allowing banks to extend the cap. In the new provision, banks can now use up to 80 percent of funds released by the federal government to local governments in their CD ratio. At present, banks have only been allowed to use 50% of the amount of these subsidies to maintain the mandatory threshold provided by the central bank.

At present, most of the banks have exceeded the 90 percent NRB fixed limit on the CD ratio. This made the banks unable to issue new loans to their customers.

This year, the government has allocated a total fund of Rs 387.30 billion to local communities. In the new arrangement, banks will be available with additional funds worth over Rs 100 billion to count in their deposit, allowing them to issue additional amounts in the form of loans accordingly.

According to the Ministry of Finance, the new provision will come into force until mid-July 2022, i.e. the end of the current fiscal year. Likewise, banks will be allowed to mobilize an additional amount created from the extended ceiling only in the productive sector, but not to finance import and trading companies.

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