Dashain sees bank

With the beginning of Dashain festival, people have started withdrawing deposits on a massive scale. Over the last one week, deposits in commercial banks decreased by Rs 4 billion despite the huge amount of remittance flowing into the country.
Deposits decreased to Rs 413 billion from Rs 417 billion over the last one week although it was expected that deposits would grow before Dashain due to massive remittance inflow. With the rising inflation
that soared on the eve of Dashain, people are needing more cash to celebrate the festival.
There are 29 commercial banks, 78 development banks, 79 finance companies and 18 micro finance development banks in operation. Also, 16 cooperatives and 45 non-government organizations have been offering financial services after acquiring permission from the Nepal Rastra Bank (NRB). There are around 800 branches of the commercial banks across the country. The people are withdrawing deposits from all these.
The remittance growth was slow until mid-September. Before Dashain it grew significantly and the central bank intervened in the foreign exchange by purchasing US$ 49.7 million on Monday alone.
The NRB will give back the amount equivalent to foreign exchange to the banks on Tuesday. It purchased around US$ 150 million over the last one week. Usually, the central bank purchases Rs 50 million worth a week.
Since the beginning of this fiscal year, commercial banks are witnessing a decline in total deposits. As
of Monday, deposit declined by Rs 18 billion since the beginning of
the fiscal year, according to NRB. The deposits in banks were Rs 631 billion until mid-July.
Bankers, however, termed the withdrawal of deposits in Dashain a normal practice. “Deposits to the tune of Rs 6-8 billion are withdrawn every Dashain,” said Sashin Joshi, president of Nepal Bankers’ Association (NBA).
Individual banks are also witnessing massive withdrawal. “Around Rs 200 million has been withdrawn from our bank after
the beginning of Dashain,” said Kamal Gyawali, chief executive officer of Kist Bank.
A senior NRB official termed the decrease in deposit during Dashain as overconsumption. “It seems all the remittance money is being used up,” the NRB official said.
The Economic Survey of the fiscal year 2009-10 has termed rising consumerism as one of the challenges for the economy.
“The consumption is increasing even amid low economic growth rate, thereby causing contraction in domestic savings,” the report says. “Therefore, another challenge for the economy is to encourage an environment for savings.”
According to the survey, the country’s gross national savings decreased to 34.4 percent in FY 2009-10 from 36.1 percent in FY 2008-09. Over the last decade, the consumption went up to 90.6 percent in FY 2009-10 from 88.3 percent in FY 2001-02, leaving little room for savings.
Due to massive withdrawal amid Dashain, some banks are already feeling hit. The liquidity situation in the commercial banks has remained tight over the last one week. “With the growth in lending
in coming days, the liquidity situation may worsen,” said the NRB
official. The lending is gradually growing to Rs 481 billion until Monday from Rs 445 billion at the end of last fiscal year.
However, bankers are lending cautiously as a result of the lesson they learnt from the liquidity crisis last year and also due to some stringent measures of the central bank against lending to the realty sector.
“There may be pressure onliquidity but not to the level experienced last year,” said the NRB official.
Bankers have been maintaining that the government’s policy was the major cause behind no growth in deposits. They have been demanding revision of the policy of income disclosure in realty purchase and depositing more than Rs 1 million in banks and financial institutions
source:ekantipur