Deposits of commercial banks fall as rates come down
KATHMANDU, Oct 29: Deposits of commercial banks fell by over Rs 1 billion over the first two months of the current fiscal year as downward revision of interest rates propelled depositors of category ´A´ financial institution to migrate to development banks and finance companies.
A total of 32 commercial banks reported deposit collection of Rs 860.64 billion in the two-month period through mid-Sept as against Rs 861.69 billion in mid-July, according to a recent Nepal Rastra Bank (NRB) report.
The fall was recorded as the latest rate reduction of up to three percentage points on certain portfolios triggered flight of cash parked in demand and fixed deposit accounts.
The central bank report shows that the size of demand deposit had shrunk by 9.1 percent to Rs 82.88 billion in the two-month period through mid-Sept, while cash in fixed deposit accounts declined by three percent to Rs 288.80 billion in the same period.
“The deposit portfolio reduced in size after commercial banks started slashing interest rates to discourage depositors from stashing money in their institutions,” a banker told Republica on condition of anonymity.
“Although shooing away customers is not a normal business practice, banks resorted to this measure after they started losing money because of mismatch in flow of depositors and borrowers.”
As banks started losing depositors, development banks and finance companies witnessed higher flow of deposits as their rates were higher than those offered by category ´A´ financial institutions.
In the first two months of the current fiscal year, development banks saw deposit growth of 2.8 percent to Rs 125.57 billion, as against decline of 1.9 percent in the same period of last fiscal year.
Although development banks also reported decline in demand deposits, they witnessed 7.9 percent rise in fixed deposits to Rs 40.13 billion.
Like development banks, finance companies also recorded rise in fixed deposits in the first two months of the current fiscal year.
These category ´C´ financial institutions, which had reported fixed deposits of Rs 36.07 billion as of mid-July, saw the size increase to Rs 37.59 billion by mid-Sept.
This helped finance companies to post 1.9 percent hike in total deposits as against a 3.7-percent fall recorded in the same period last fiscal year. With this rise, finance companies reported deposit collection of Rs 76.85 billion as of mid-Sept, as against Rs 75.40 billion in mid-July.