KATHMANDU, Dec 30: Banks and financial institutions (BFIs), flushed with excessive liquidity amid weak credit demand, have shown overwhelming interest in Nepal Rastra Bank (NRB) bonds, submitting applications nearly 49 times the amount offered by the central bank.
According to the NRB, it received applications worth more than Rs 1.22 trillion for its one-year ‘Nepal Rastra Bank Bonds’, against the Rs 25 billion it offered for sale on Monday. The bonds were issued for the first time as a new instrument to absorb excess liquidity in the banking system.
Revised interest rate corridor system introduced
Nepal’s banking sector has been facing prolonged excess liquidity, largely due to sluggish credit growth amid protracted economic slowdown. Despite successive reductions in interest rates, BFIs have struggled to expand lending and are increasingly seeking safe avenues to park idle funds, even at low returns.
Until now, the NRB has relied on tools such as repo and reverse repo operations, changes in reserve requirements, fixed deposits, and the Standing Deposit Facility (SDF) to mop up excess liquidity. In recent months, it has also allowed BFIs to place deposits with the central bank for up to 175 days. The issuance of longer-maturity bonds marks a further step in this effort.
In Monday’s auction, the NRB received 129 applications from 32 BFIs seeking to place Rs 1.22055 trillion. The average interest rate was fixed at 2.64 percent per annum. Following the auction, total deposits of BFIs with the central bank rose to Rs 621.80 billion.
NRB data show that total deposits mobilized by BFIs have reached a record Rs 7.592 trillion, while total credit disbursement stands at Rs 5.690 trillion. As a result, the credit-deposit (CD) ratio has fallen to 74.11 percent, well below the regulatory ceiling of 90 percent, leaving BFIs with excess investable funds of around Rs 1.14 trillion.
Meanwhile, former NRB executive director and coordinator of the Banking Sector Reform Recommendation Task Force, Rewat Bahadur Karki, has called on the central bank to focus on making monetary policy more effective. Speaking at a programme on Monday, he said monetary policy should address systemic issues rather than target individual institutions, while maintaining strict action against wrongdoing where necessary.
