Banks are facing liquidity surplus from the very beginning of 2013/14. Will it hit their profits?

I don't think so. Loan flow has been increasing gradually for the past few months. We are focusing on small and medium loans to expand our loan portfolio. Out of our total loan portfolio of Rs 43 billion, we have issued loans worth Rs 4 billion on Small Medium Enterprises (SMEs). In recent times, we are getting very good demand for loans.

How is the situation now?

If you look at the recent data of Nepal Rastra Bank (NRB), loans have increased by 14 percent whereas deposits have grown by only 11 percent. But if we analyze the situation in terms of Credit Deposit Ratio (CDR), banks are keeping enough cushions. This is happening because of slow pace of capital spending. This means the government has no need to borrow. As a result, treasury bills are not being issued to mop up excess liquidity.

Banks are issuing loans at cheaper rates. What is the reason?

This is because of competition. Banks are competing to issue term loans at cheaper rates. We are giving short-term loans at 7.75 percent.

Nepal Rastra Bank (NRB) is capping spread rate at 5 percent from the coming fiscal year. Bankers are lobbying with the central bank to revisit the provision. Do you think the central bank will consider it?

I think the central bank should consider our request. If we collect Rs 100 as deposit, we can lend only Rs 80. But the central bank is calculating the spread rate as if we lend the entire amount that we collect as deposit, which is not right. Apart from that, cap on spread rate should be enforced only on the ongoing loans. Loan provisioning and write-back shouldn't be included while calculating spread rate.

Are you introducing any new product?

We are preparing to launch credit card in association with China Union Pay by July. It will be the first credit card for people visiting China. We are very cautious about IT security. That is why we are strengthening our IT department. Likewise, we are expanding mobile banking service through mobile banking platform which we will introduce in September.

(Courtesy: Excerpts from My Republica)