KATHMANDU, July 22: The credit to deposit (CD) ratio of commercial banks has fallen to as low as 62.59 percent due to the excessive liquidity resulting from insufficient lending business.
Nepal Rastra Bank (NRB) has set the threshold of 90 percent for the CD ratio for banks and financial institutions (BFIs), which means that the BFIs can issue a maximum of 90 percent of their deposits in loans to their clients. However, for over the past two years, the BFIs have been doing their businesses far below the limit fixed by the central bank.
The records with the Nepal Bankers’ Association show that the CD ratio of the state-owned Rastriya Banijya Bank stood at the lowest of 62.59 percent as of the end of the fiscal year 2024/25. Out of 20 commercial banks, three have CD ratios below 70 percent, while that of 11 banks is between 70 and 80 percent. Only six have slightly above 80 percent of their CD ratios.
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As of mid-July 2025, the average CD ratio of commercial banks stood at 75.78 percent, down from 78.89 percent in mid-July 2024.
According to the NRB, the BFIs have parked their unutilized funds of Rs 700 billion with the central bank. On the first day of the current FY alone, the BFIs utilized the NRB’s standing deposit facility to keep their cash worth Rs 306 billion at the central bank.
Due to the slowdown of demand for loans and increased deposits collection, excessive loanable funds have piled up in the country’s banking system. The NRB records of last week show that BFIs collected deposits of Rs 7.292 trillion, when they provided loans of only Rs 5.600 trillion.
As Nepal's banking sector has been grappling with several challenges, the BFIs have become reluctant to inject more money in loans. Apart from facing surging liquidity problems, they have been gripped by rising cases of defaults, increasing non-banking assets, and stagnated lending.
Likewise, there is a significant rise in the inflows of remittance through the banking channel. As a result, there is a notable decline in average interest rates on both loans and deposits of BFIs.
According to the latest statistics of the NRB, the weighted average interest rate on loans has fallen to 7.99 percent and the average interest rate on deposits to 4.29 percent. The weightage average of interbank interest rate has come down to 2.87 percent.
