KATHMANDU, Jan 19: The fresh financing facility of Rs 40 billion offered by the Nepal Rastra Bank (NRB) in the wake of liquidity shortage was not also fully subscribed, widening a rift between the central monetary authority and bank and financial institutions (BFIs) over the diagnosis of the current problem. 

While NRB officials contend that their assessment that there is not liquidity crisis in the banking system, as claimed by bankers, has been reinforced by the reluctance of BFIs to accept the financing facility, bankers argue that facility offered by that central bank cannot ease their problem.

The offering of Rs 40 billion through outright sale auction only drew subscription of Rs 9.56 billion only. 

"Bankers have been saying that they are facing liquidity problem to float loans. Had there been such shortage, they could have taken all the money offered," Trilochan Pangeni, an executive director at the NRB, told Republica.

The NRB denied the facility to many BFIs who quoted lower rates to get the fund.

Pangeni, who is also the chief of Public Debt Management Department of the NRB, said the central bank provided only Rs 1.53 billion to banks as rates quoted by many BFIs were lower than interbank lending rate. 

The interbank lending rate currently stands at 3.74 percent. 

"We cannot extend funds to the BFIs by distorting the market rate," added Pangeni. 
However, bankers say that that had asked for solution to ease the shortage resulting from the CCD (credit to core-capital-cum-deposit) ratio requirement which has crippled their lending capacity. 

Banks have to maintain 80:20 CCD ratio, implying that they can only extend loans of Rs 80 from Rs 100 capital and deposit. From the remaining Rs 20, they have to maintain Rs 6 in cash reserve and 8 percent in investment on securities, among others.  As such ratio of many BFIs is hitting the upper limit of Rs 80, they are facing shortage of fund to issue loans.

"The problem that we are facing is toward maintaining the ratio of 80, not 20. The instruments that the NRB have been issuing will only help to maintain the fund toward 20 which is of no use for most of the BFIs. Those who need that fund would quote rates according to their requirements," Bhuvan Dahal, an executive member of Nepal Bankers' Association (NBA), said.

 
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• nepal rastra bank
 
• bank and financial institutions