A total of 32 commercial banks extended Rs 74.21 billion in credit to various sectors in the 11-month period to mid-June, in contrast to deposit mobilization of Rs 138.84 billion in the same period. In the same period of fiscal year 2010/11, commercial banks had extended Rs 52.44 billion in loans and collected Rs 29.68 billion deposits.[break]
The discrepancy in deposit and credit expansion shows that banks are currently sitting on a mountain of cash, much of which has not been utilized.
It is said the banking system currently has a liquidity of around Rs 100 billion. But due to tepid credit growth, triggered by slowing productive sector, most of the financial institutions are only paying interest on the parked cash, which is putting pressure on their net earnings.
“The investment climate in the country is not promising, which has brought down the demand for loans,” Rajan Singh Bhandari, CEO of Citizens Bank, said. “Had it not been for few sectors like hydropower and industries like cement and steel plants, it would have been difficult for banks to post 41 percent lending growth.”
The NRB report shows that basic iron and steel plants consumed Rs 6.01 billion in loans, while cement industries took away credit of Rs 4.41 billion in the 11-month period, up 29.2 percent and 36 percent, respectively. Credit growth in these sectors pushed up lending to the production sector by 22.8 percent to Rs 26.25 billion, or 35 percent of the total loans extended by commercial banks.
However, in terms of growth, agriculture sector topped the list, with credit flow rising by a hefty 60 percent to Rs 8.5 billion during the period.
Many bankers say the credit to the agri sector has gone up in the recent period because of the central bank´s mandatory provision that requires all banks and financial institutions to extend at least 10 percent of the total loan to agricultural and energy sectors. But they also say their balance sheets do not show the level of growth reflected by the central bank report.
Earlier, bankers had urged the central bank to launch an investigation into the matter as they fear cases of reclassification to meet the standard set by the central bank.
Among others, wholesale and retail traders took away Rs 14.8 billion in loans, a hike of 13.6 percent, construction sector secured Rs 8.97 billion in credit, a rise of 17.4 percent, and service sector consumed Rs 6.66 billion in loans, a rise of 18.3 percent.
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