Kathmandu. Although the monetary policy has been made very flexible, the flow of credit to the private sector through the banking system has not increased as expected. Although the Governor of Nepal Rastra Bank has been more active in this situation in recent times, it has not had a tangible effect in boosting the morale of the private sector and increasing the demand for loans.
Governor Bishwanath Poudel is in constant discussion with banks and businessmen on why credit expansion has been slow even after policy facilitation. In recent days, he has been meeting with bank chief executives and representatives of the private sector to understand the bottlenecks in the flow of loans. He also urged the banks to develop products that provide loans to real businessmen and investors. However, despite the governor’s activism, the private sector still seems to be in a wait-and-see situation.
Rising non-performing loans, slowing economic activity and uncertainty about the future have forced banks to focus on recovery rather than loan expansion, say experts. As a result, despite having sufficient liquidity, the demand for loans has not been generated.
According to bankers, there is a lot of money to invest in the banking system at present, but there is no environment to take risks. They believe that the private sector has not been encouraged to invest due to the election atmosphere, poor implementation of government expenditure and lack of big projects. Some argue that government investment is crucial to revitalizing the economy.
Economists also believe that policy easing alone is not enough. According to them, credit expansion is not possible until an environment is created to increase investment in productive sectors. They say that although there is more liquidity in the banking sector, the economy has not gained momentum due to the lack of big and result-oriented projects to use it.
According to the latest statistics of Nepal Rastra Bank, deposits in banks and financial institutions have reached a historic level. However, the loan-deposit ratio is declining. This indicates that there is a lot of liquidity rather than credit expansion. Although the private sector loans are projected to grow in double digits in the current fiscal year, the target has been challenging in the current financial year.
Despite Governor Poudel’s active efforts, the morale of the private sector has not yet fully returned. Unless an investment-friendly environment is created through coordination between the government, regulators and the private sector, the demand for credit will increase and the economy will not be able to return to rhythm.
