Money piles up in banks with no demand for loans
KATHMANDU, Sept 15: After increased liquidity in the banks, Nepal Rastra Bank (NRB) has decided to mop Rs 100 billion from banks and financial institutions (BFIs) today. At 3 PM today, the NRB will mop this amount from the BFIs through a bidding instrument.
The NRB is set to collect this amount for a period of 21 days. Commercial banks, development banks, and finance companies will be able to participate. BFIs can propose interest rates in the bidding. Banks can also make multiple bids on the interest rate. Preferences will be given to those proposing the lowest interest rates.
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After increased liquidity in the banks, the NRB is bidding Rs 100 billion in deposits today. Recently, the NRB has repeatedly been withdrawing money from banks in this manner.
In the bidding, banks can submit bids ranging from a minimum of Rs 100 million to a maximum of Rs 500 million, up to the total amount called for. Banks can use the deposits held with the NRB as collateral for other banks and financial institutions as well.
After 21 days, that is, on October 6, the banks will receive the principal and interest payments. With the current low demand for loans, money has accumulated in the banks. In this situation, it appears to be a suitable option for banks to manage their liquidity.
Currently, there are Rs 6.496 trillion in deposits in the banks and financial institutions across the country. The loan disbursement stands at Rs 5.29 trillion. The current credit-to-deposit ratio (CD ratio) for banks and financial institutions is 78.80 percent. Loans can be disbursed until the CD ratio reaches 90 percent.
Banks are still allowed to disburse 11.20 percent of their deposits as loans, which amounts to Rs 727 billion. However, with the current low demand for loans, this money has accumulated in the banks. To manage this, the government is set to mop Rs 100 billion in a single day.