Institutional depositors urged not to withdraw deposits

KATHMANDU, JUN 08 -

The central bank, one of the key institutional depositors, has itself decided not to withdraw its deposits from B and C class financial institutions despite maturity. It holds around Rs 9 billion in these financial institutions


Providing a much-needed relief to banks and financial institutions (BFIs) facing a protracted liquidity crunch, the High-Level Financial Sector Reform Committee headed by the finance minister on Tuesday decided to request institutional depositors not to withdraw their deposits from BFIs immediately.

The decision came a day after People’s Finance Company closed its transactions due to liquidity crisis. Apart from bad corporate governance, closure of the company’s transactions has been attributed to the Nepal Rastra Bank (NRB)’s and Rastriya Beema Sansthan (RBS)’s plan to withdraw their maturing deposits.

The central bank, one of the key institutional depositors, has itself decided not to withdraw its deposits from B and C class financial institutions despite maturity. It holds around Rs 9 billion in these financial institutions.

Reports that the central bank is preparing to withdraw all its deposits in B and C class financial institutions resulted in huge deposits withdrawal by other key institutional depositors. “The committee decided to request all institutional depositors not to withdraw their fixed deposits for the time being,” said NRB Deputy Governor Maha Prasad Adhikari.

As the country’s key institutional depositors are government-owned entities, it is believed that they will comply with the committee’s request. Employee’s Provident Fund, Citizen Investment Trust, Army Welfare Trust of the Nepal Army, Nepal Telecom and Rastriya Beema Sasthan are some of the top intuitional depositors.

Due the prolonged liquidity crunch, inter-banking lending rate is hovering around 10 percent and the repo (central bank providing liquidity by taking treasury bills of BFIs) rate at around 10 percent.

The NRB recently decided to issue repo twice a week to ease the liquidity crisis. According to NRB Spokesperson Bhaskarmani Gyawali, the central bank will issue repo worth Rs 4 billion on Wednesday.

The committee also decided to inject the amount lying in the government’s pension account in the market. “There is around Rs 5 billion in the pension account,” said Adhikari, “The committee has decided to bring the amount in the market.”

The committee also decided to simplify the refinancing mechanism by easing the provision for refinancing from the central bank. “We have already prepared a draft of the special refinancing provision,” said the NRB official. The central bank will adopt flexibility in non-performing loan (NPL) level, credit-to-deposit ratio and areas where BFIs can lend with the refinanced amount.

Low government spending has also affected the liquidity situation in the banking system. Finance ministry has said it will be able to spend only 60 percent of the development budget. The ministry has estimated that Rs 30 billion will be frozen. As of May 20, only Rs 45.48 billion in cash has been spent from the capital expenditure heading, whereas the total allocated amount stands at Rs 102.61 billion.

Posted on: 2011-06-08 09:05
http://www.ekantipur.com/2011/06/08/business/institutional-depositors-urged-not-to-withdraw-deposits/335350.html