A committee formed by the Ministry of Finance(MoF) to recommend measures to address the shortage of lendable funds hasconcluded that the government does not need to offer any relief for the bankand financial institutions (BFIs) at this moment.

The committee, which was formed last month underMoF under-secretary Ram Sharan Pudasaini to look after the shortage ofliquidity in the banking industry, submitted its report to the ministry lastweek. 

Pudasaini, who is also the head of the MoF’sEconomic Policy Analysis Division, told Republica that there was nothing thatgovernment could do to address the shortage of lendable fund in the bankingsystem. 

“The committee found that this is not a liquidityproblem that commercial banks have faced, but shortage of lendable fund due tomismatch in the growth of deposit and loan,” said Pudasaini, adding that thegovernment could not come to help commercial banks in making investments. “Thegovernment looks the situation in totality, rather than the problem that fewcommercial banks face. We found that the problem is not as serious for thegovernment to intervene,” he said.  

According to Pudasaini, there was a lendable fundof over Rs 50 billion with banks when the committee submitted its report. Amiddemands from bankers to channelize the surplus of government funds to banks, hesaid that the current laws and rules do not allow such transfer. “The fund canbe channelized only after the amendment in laws and regulations. This issomething that we can work out on a long term to address the recurring problemof volatility in liquidity,” he said. 

The conclusion of the committee comes against theexpectation of bankers that the government will provide them some relief onresolving the shortage of lendable fund. Many banks have already halted theirlending as they do not have funds that they can expand as loans. As the rule onprudential lending limit does not allow banks to lend more than 80 percent of whatthey have core capital and deposits combined, known as core-capital-cum-depositratio, some banks have already crossed the ratio while many are at thesaturation level. Making the matter worse, an additional fund to the tune of Rs60 billion has been withdrawn from the banking system by depositors at the endof the second quarter to pay the government taxes. 

“The banks should find deposits themselves. Ifit’s the problem of liquidity, they can use the instruments floated by NepalRastra Bank,” said Pudasaini. “The government does not need to do anything.”

MoF’s committee’s conclusions:

l.   Current laws and rules do notallow to channelize government surplus fund to commercial banks

2.  Current situation does not call forgovernment’s relief 

3.   Government cannot do anything toaddress problems faced by some commercial       banks 

4.    Commercial banks should finddeposits or solutions themselves

5.   Commercial banks can use NepalRastra Bank’s instruments if they face liquidity shortage  

Source: My Republica,17^th January 2018