Bankers told myrepublica.com that the liquidity scarcity deepened further after the four major institutional depositors postponed renewal of their bulk deposits held at commercial banks, possibly to scrutinize impacts of the recent directives of the central bank that limited real-estate plus housing loan exposures.
However, an official at Employees´ Provident Fund (EPF), the largest institutional depositor, said that the some of its renewals have been postponed because it might have to provide loans worth Rs 10 billion to Nepal Airlines Corporation to buy two aircraft.
The decision of the big depositors to delay renewals of their deposits has triggered waves of panic across the banking sector, forcing major banks to announce various deposit schemes with higher interest rates to keep the deposits and lending at balance, said a banker, who preferred to be unnamed.
EPF, Nepal Army, Citizen Investment Trust and Nepal Telecom that altogether hold deposits of around Rs 80 billion are the major institutional depositors in the country.
It might be because of the reaction of the institutional depositors over rumors about financial crisis that some banks might have to face following the imposition of NRB´s new limit, said the banker.
The banker, who participated Wednesday´s inter-bank lending bidding, said there was tremendous demand for lending, calling for more capital injection into the money market by the central bank.
According to bankers, the market is in need of additional liquidity injection of around Rs 15 billion for the period of next three to four months.
Sashin Joshi, president of Nepal Bankers´ Association said the central bank has assured the association of additional injection of liquidity to stabilize the market.
"We are in constant touch with the central bank and it has dropped hint that it will bring more repo (an instrument to lend commercial banks against government bill that they hold)," said Joshi. The central bank has already injected capital worth Rs 12 billion in the running fiscal year.
Central bank officials were hopeful that liquidity shortage will start to ease down from the coming week as the speculative demand for gold has gone down after fall in its price in international market. Around 40 percent of remittance income in foreign currency was being used to import gold due to which only 60 percent of the remittance earning used to come to the central bank for exchange, thereby expanding money supply, said a central bank official.
Decline in imports will slow down imports, which ultimately will channel more remittance in foreign currency to central bank, thus increasing flow of fresh liquidity in the market, the official explained.
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