Nepal Rastra Bank (NRB) is having a tough time managing excess liquidity in the banking system. Since last fiscal year, deposits have grown faster than loan demands, causing too much idle money in banks. To handle this, the central bank has been using deposit collection tools to pull money out of the system. Despite continuous efforts, excess liquidity has continued, pushing NRB into further difficulty.
NRB has announced it will withdraw Rs. 40 billion from the banking system today (Shrawan 21). The bidding will be held at 3 PM.
Terms for financial institutions
- Interested banks and financial institutions must bid a minimum of Rs. 10 crore and in multiples of Rs. 5 crore
- Bids must include interest rates, and multiple bids with different rates are allowed
- Only Class A, B, and C institutions can participate
This is a 35-day liquidity instrument, which will mature and be repaid (principal + interest) on Bhadra 25.
Why is this happening?
Due to weak demand for loans, banks are left with more cash than they can lend. As a result, they’re now forced to deposit money back to NRB at very low interest rates, close to 3%.
