KATHMANDU, Dec 11: Nepal Rastra Bank (NRB) has mopped up Rs 5 billion from the banking industry through deposit auction to bring down excess liquidity in the banking system.
With bank and financial institutions (BFIs) scrambling to park their excess cash in the central bank's vault, the interest rate of deposit rates came down further to 0.6786 percent from 1.4574 percent fixed in the earlier round of deposit issue. The bidding for Rs 5 billion was oversubscribed by 5.78 times.
The central bank received a total of Rs 28.9 billion of offer from 201 bids placed by 29 BFIs, according to Public Debt Management (PDM) at NRB. “
"With the loan-able fund in the banking system showing no sign of receding and deposits piling up, the central bank has decided to mop up the fund through this open market instrume”t," Min Bahadur Shrestha, executive director of PDM, told Republica.
According to Shrestha, liquidity surplus in the banking system has now come down to Rs 47 billion. He further said that central bank was preparing to mop up another Rs 5 billion from the banking system through deposit auction on Sunda“. "We expect the liquidity situation to come in a relatively comfortable position as the central bank will be absorbing Rs 10 billion from these two rounds of deposit auction and reverse rep”s," he added.
The rising level of liquidity surplus has caused interest rates of instruments like deposit auctions and reverse repos to go down, according to analysts.
Flushed with excess cash and unable to float loans, BFIs park their money in the central bank through these open market operation instruments held through auction, even though they offer lower interest rates.
Reverse repos and the deposit auction are two main instruments that the central bank has been using to mop up excess liquidity which has grappled the banking industry for the past few years. Reverse repo, which is held more often, has a maturity period of seven days while deposit auction has maturity period of 90 days.
NRB has mopped up a total of Rs 85.3 billion from the banking industry through reverse repo in the first five months of Fiscal Year 2015/16, according to PDM. Similarly, it also absorbed Rs 57 billion through deposit auction in the review period.
However, the central bank has only Rs 116.15 billion outstanding amount toward deposit auction, Rs 1 billion toward reverse repo and Rs 2 billion as of Thursday.
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