NRB’s wrong policies behind deepening liquidity crisis: Entrepreneurs

Published On: November 3, 2022 08:30 PM NPT By: Republica  | @RepublicaNepal

KATHMANDU, Nov 3: Private sectors have blamed the deepening liquidity crisis in the country’s banking system to the defective policies implemented by Nepal Rastra Bank (NRB).

Expressing their dissatisfaction over the NRB’s policy, Industry Association Morang, Morang Merchants’ Association and the Confederation Nepalese Industries Province 1, have criticized the central bank’s policy of credit-deposit (CD) ratio and tight monetary policy for the current problems. On Thursday, the umbrella organizations of private sectors handed over a 12-page long report on ‘Impacts of Financial Liquidity Crisis and Rise in Interest Rates on Industries and Measures for Solutions’ to the NRB.

They maintained that the replacement of the credit to core capital plus deposit (CCD) ratio by CD ratio has generated Rs 229 billion idle liquidity in the banking system. Similarly, the recently increased cash reserve ratio (CRR) has wiped out an additional loanable fund of Rs 51 billion.  

Since last fiscal year, NRB has scrapped CCD ratio and enforced CD ratio in Nepali banking businesses. The central bank has implemented contractionary monetary policy for the current fiscal year in the name of checking unproductive lending amid soaring imports.

As a measure to tighten the money supply, NRB has increased CRR from 3 to 4 percent while the statutory liquidity ratio (SLR) has also been increased by two percent. According to the business associations, the increased SLR has frozen another Rs 102 billion of banks.   

The business associations also suggested the NRB to reduce the spread rate to three percent from existing 4.4 percent. Likewise, they sought the central bank’s action to revise provisioning in good loans from 1.3 percent to one percent as earlier.

Recently, the private sectors have been panicked by the excessive hike in interest rates by the banks. Citing the liquidity crisis, banks have increased interest rates on loans as high as 18 percent.

NRB, however, has been defending the banks’ move stating that the hike in interest rate is market-driven. Executive Director of NRB Prakash Kumar Shrestha said interest rates can not be reduced until there is a notable rise in the foreign currency reserves. 

Leave A Comment