E-Kantipur

KATHMANDU, JUN 03 -

At a time when commercial banks are struggling to attract deposits, cooperatives are recording a robust growth in their deposits. Such is the growth rate that it almost matches with that of commercial banks.

Latest statistics of the Department of Cooperatives (DoC) show that deposits in

saving and credit cooperatives (SCC) alone increased by Rs 54.56 billion to Rs 97.49 billion as of mid-April this year. Deposits in SCC stood at Rs 42.93 billion in Mid-April last year. During the  same period, deposit mobilisation of commercial banks increased by Rs 66.56 billion, according to a Nepal Rastra Bank (NRB)’s report.

With banks struggling to collect deposits, the DoC statistics clearly suggest where the money is going. The whopping growth in deposits of cooperatives illustrates the fact what regulators and bankers are suspecting—diversion of money to cooperatives from banks and financial institutions (BFIs).

Given the commercial banks witnessing stagnation in deposit collection despite their best efforts to attract deposits, the banking regulator and bankers have been speculating that deposits might have diverted to cooperatives that usually offer higher interest rates. “This proves that a staggering amount savings has diverted to cooperatives,” said Sudarshan Prasad Dhakal, registrar at DoC.

Banks are currently going through a protracted liquidity crunch despite offering high interest rates on deposits. “We were suspecting a possible diversion of deposits to cooperatives, but were not sure about the size of diversion,” said Bhaskarmani Gyawali, spokesperson for NRB. He said the central bank will conduct a study in this regard.

Bankers attribute the depositors’ growing attraction towards cooperatives to high interest rates offered by them and certain regulatory measures including income source disclosure provision. Bankers are pointing at the Anti Money Laundering (AML) provision that seeks income source for deposits above Rs 1 million as one of the major reasons behind the liquidity crunch.

NIC Bank CEO Sashin Joshi said the enormous rise in deposits of cooperatives suggests that the country is heading towards a more informal

economy. “The massive rise in deposits of poorly regulated cooperatives sector poses a big challenge for the financial system,” said Joshi.

NRB officials suspect that deposits in cooperatives grew as they do not comply with AML measures although they have to.

In the absence of an all-powerful regulatory body like the central bank to monitor cooperatives, there are fears that public deposits might be at risk with most of the cooperatives not following prudential financial norms.

Economist Bishwambher Pyakuryal says lack of a body to monitor deposits worth almost Rs 100 billion in cooperatives is itself as serious challenge for the economy. “Rise in the informal economy has made implementation of the central bank’s monetary policy difficult,” said Pyakuryal.

Pyakurel says either there should be a strong regulatory body to monitor cooperatives, or the central bank should rethink about policy changes so that deposits in banks could grow. “In my point of view, either we’ve to rethink about the AML provision or set up a strong regulatory mechanism for cooperatives,” said Pyakuryal, who is also a board member of NRB.

Not only on the deposit front, there has been a significant growth in investment of cooperatives as well. Investment of SCCs grew to Rs 79.66 from Rs 48.88 billion over the review period. The entire cooperatives witnessed the rise in their investment to Rs 104 billion from Rs 61.54 billion, as per the DoC report.

Amid concerns about the amount of deposits in cooperatives as they are less transparent, the DoC has directed cooperatives having transactions of above Rs 10 million to submit their financial reports on a monthly basis.

Posted on: 2011-06-03 08:57

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