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Deposits returning to commercial banks

Updated: 15-Sep-14

Depositors’ preference has once again shifted back to commercial banks. This is what the Nepal Rastra Bank (NRB)’s statistics show.

KATHMANDU, DEC 20 -

Depositors’ preference has once again shifted back to commercial banks. This is what the Nepal Rastra Bank (NRB)’s statistics show.

According to the central bank’s latest Banking and Financial Statistics, deposits in commercial and development banks grew by 5.5 percent and 2.4 percent, respectively, in the first quarter of the current fiscal year. At the same time, finance companies saw their deposits slump by 3.5 percent.

In the last two years, development banks and finance companies attracted huge deposits. In 2009-10, deposits in development banks rose by 60.3 percent to Rs 76.95 billion and finance companies saw their deposits grow by 35.08 percent to Rs 77.4 billion.

The robust growth started to decelerate in the last fiscal year with deposit growth in development banks remaining at to 25.9 percent and finance companies at 10.4 percent. The actual crisis began since last April when some development banks and finance companies landed in trouble, prompting depositors to divert their money away from them. As a result, finance companies saw their deposits decline in the first quarter this fiscal year.

“It looks deposits have shifted towards commercial banks from finance companies,” said Maha Prasad Adhikari, deputy governor of NRB. “In case of development banks, they are not facing much pressure despite institutional depositors are moving away from them.” Fixed deposit and call deposits that institutional depositors usually put in the B and C class financial institutions have come down drastically. Fixed deposits in development banks grew by just 1 percent against last year’s 28 percent. Call deposits also suffered a decline of 4.2 percent against the growth of 39.7 percent last year.

Similar is the situation in finance companies. Both of their fixed and call deposits decreased by 6.7 percent and 53.9 percent, respectively, in the first quarter, which in commercial banks grew by 8.1 percent and 8.8 percent, respectively. “People are concerned about the safety of their money instead of high interest,” said Upendra Poudel, chief executive officer of NMB Bank. “Institutional depositors are re-channelising their deposits into commercial banks.”

Finance companies also admit to this fact. Finance Companies’ Association President Rajendra Man Shakya said the crisis started since finance companies and development bank started landing in trouble in April. “We have experienced some good indications after September, but we have to regain public confidence first to attract deposits,” he said.

Besides high public confidence, commercial banks have extra advantages over development banks and finance companies. The government’s revenue collection and spending goes through commercial banks and they also bring in remittance. “These factors have helped in commercial banks’ deposit growth,” said Siddhant Raj Pandey, chief executive officer of Ace Development Bank.

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