Kathmandu. Nepal’s financial market is going through a serious and strange paradox. On the one hand, the interest rate has fallen to the lowest point in history due to the accumulation of liquidity in the banks. On the other hand, the private sector is not showing enthusiasm for new investment by taking loans. <\/p>\n
Nepal Rastra Bank (NRB), through the Monetary Policy for the current fiscal year, has set an ambitious target of expanding credit to the private sector by 12 percent. However, with only 2 months left for the end of the fiscal year, the failure to extend even half of the target has highlighted the sluggishness of the economy. <\/p>\n
According to the statistics of the Nepal Rastra Bank, the credit flow to the private sector has increased by 5.7 percent in the last 10 months. In terms of numbers, it is only Rs 3.12 trillion. With this, the total loan flow has reached Rs 5809.71 billion. Loans grew by 7.3 percent in the same period last year, compared to this year’s growth rate. This data on credit expansion clearly indicates that there is still no enthusiasm and investment environment in the market. <\/p>\n
The main question now is, “Why are businessmen not taking loans even when interest rates are low?” The physical damage suffered by the private sector during the ‘Genji’ movement in August 2082 and the confusion it has created is still scaring the investors. <\/p>\n
Anjan Shrestha, president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said that entrepreneurs are reluctant to take the risk of increasing production by taking loans as there is no demand in the market. Speaking at a policy dialogue program of FNCCI, President Shrestha described the current economic situation as an ‘uncomfortable contradiction’. “There is a lot of money in the bank now. Interest rates have fallen historically, but there is no demand for loans. This is a surprising situation because the demand in the market is constricted. \u2019<\/p>\n
According to Shrestha, domestic consumption has decreased due to the decline in capacity utilization of industries and rapid migration of youths. He further said, “Youths are migrating abroad, due to which the number of consumers in the market has decreased. Amidst this dilly-dallying and confusion, we expect that the new budget will restore confidence and momentum to the economy. Effective implementation of the budget will create an environment for increased investment. \u2019<\/p>\n
Although the demand for loans has slowed, the collection of deposits in the banks has been very encouraging. Deposits of banks and financial institutions increased by 9.4 percent to Rs 685.41 billion as of mid-April 2018 to Rs 7.949 billion. In the same period of the previous year, the deposit growth was 6.2 percent. This shows that people are safer to keep money in the bank than to spend or invest. <\/p>\n
This is the most favourable time for borrowers. According to the data till mid-April 2008, the average base rate of commercial banks has come down to 4.97 percent from 6.17 percent in the previous year. Similarly, the weighted average interest rate has also come down from 8.11 percent to 6.73 percent. The interest rates of development banks and finance companies have also declined in the same proportion. <\/p>\n
Thus, on the one hand, the private sector is not ready to invest even after the government and the Nepal Rastra Bank have adopted flexible policies and reduced interest rates. As Shrestha said, the way ahead is the effective implementation of the budget and restoring the confidence of the private sector. Unless there is demand in the market and investors feel safe, cheap interest rates alone will not be able to stimulate demand for credit.<\/p>\n","protected":false},"excerpt":{"rendered":"
Kathmandu. Nepal’s financial market is going through a serious and strange paradox. On the one hand, the interest rate has fallen to the lowest point in history due to the accumulation of liquidity in the banks. On the other hand, the private sector is not showing enthusiasm for new investment by taking loans. Nepal Rastra […]<\/p>\n","protected":false},"author":16,"featured_media":229877,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[45117,45031,45159],"tags":[],"class_list":["post-302770","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bank-finance-en","category-banner-news-en","category-news-en"],"acf":[],"_links":{"self":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/302770","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/users\/16"}],"replies":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/comments?post=302770"}],"version-history":[{"count":1,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/302770\/revisions"}],"predecessor-version":[{"id":302771,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/302770\/revisions\/302771"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media\/229877"}],"wp:attachment":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media?parent=302770"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/categories?post=302770"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/tags?post=302770"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}