बैंकमा निक्षेप थुप्रियो, लगानीको ठाउँ साँघुरियोBanks awash with deposits, but lending avenues shrink

Not long ago, banks and financial institutions were locked in a race to woo depositors with ever-higher interest rates to ease a liquidity crunch. That picture has now flipped entirely. The banking sector's main headache today is not a shortage of money but a shortage of places to put it. Deposits keep piling up, yet lending has failed to keep pace, leaving banks sitting on a mountain of investable funds.

According to the latest data from Nepal Rastra Bank (NRB), deposits in the banking system have crossed Rs 8.05 trillion. Against this, banks have extended just Rs 5.91 trillion in loans. The credit-to-deposit (CD) ratio stands at only 72.78 percent, even though banks are permitted to lend up to 90 percent. That leaves more than Rs 1.3 trillion still available for lending across the system.

Remittances fuel the deposit surge

The main engine behind the deposit growth is remittances. In the first 10 months of the current fiscal year, remittance inflows jumped 41 percent to Rs 1.92 trillion. In the month of Baishakh alone, more than Rs 257 billion flowed in. Because much of the money sent home from abroad lands directly in bank accounts, the deposit base has ballooned. Bankers say household savings have also tilted toward banks as returns in the share market and real estate have cooled.

Rates fall, but credit doesn't rise

As liquidity swelled, banks have steadily trimmed both deposit and lending rates. The average deposit rate at commercial banks has slipped to 3.35 percent, while the average base-rate-linked lending rate has eased to 6.73 percent. Cheaper credit would normally lift loan demand — but that textbook rule isn't holding this time. Over the 10 months, private-sector credit grew just 5.7 percent (about Rs 312 billion), down from 7.3 percent in the same period last year. The numbers make clear that the system is short on demand, not resources.

Nearly Rs 1 trillion parked at the central bank

With few outlets for lending, banks have begun returning surplus cash to the central bank's vaults. Roughly Rs 999 billion of the financial system's money is now parked at NRB, earning between 2.68 and 3 percent. But that is not the business banks are meant to be in. "The problem isn't too few deposits — it's too many. We still have to pay interest to depositors, but there's nowhere to invest," said the chief executive of one commercial bank. With depositors owed regular interest while the funds sit idle, pressure is mounting on bank profits.

Why is demand so sluggish?

Although the external sector looks robust, domestic economic activity has yet to heat up. Industrialists and businesses remain cautious about fresh investment, construction has lost momentum, government capital spending is weak, and the real estate market has not fully revived. By sector, credit rose 12.8 percent for construction, 12.3 percent for consumption and 10.9 percent for transport and communication — but lending to agriculture actually contracted 2.3 percent. Import-linked trust receipt loans, meanwhile, surged 36 percent, a sign that money is leaning toward consumption and imports rather than production.

Finance Minister Swarnim Wagle has himself acknowledged that, despite ample resources in the system, they cannot be channelled into productive sectors. Experts argue the real challenge now is not managing liquidity but creating investment opportunities. They suggest developing long-term instruments such as infrastructure bonds, project-based debentures and municipal bonds to steer the idle funds into production. Until credit demand picks up meaningfully and the economy gains pace, they say, the pile-up of cash in banks is unlikely to ease anytime soon.