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By Sandeep Chaudhary

Demand Deposits Collapse by Rs. 114 Billion: Banking Liquidity at Risk?

Demand Deposits Collapse by Rs. 114 Billion: Banking Liquidity at Risk?

Nepal’s banking system witnessed a sharp fall in demand deposits, which plunged by Rs. 114.6 billion in August 2025, reflecting rising liquidity stress and changing saving patterns among depositors. According to Nepal Rastra Bank’s Monetary Survey (Mid-August 2025), demand deposits dropped from Rs. 501.9 billion in mid-July to Rs. 387.3 billion in mid-August, marking a steep 22.8% decline within a single month — one of the largest monthly drops recorded in recent years.

This drastic fall indicates that individuals and businesses are withdrawing funds for consumption, investment, or alternative savings like fixed deposits and cooperatives. Analysts suggest that tight monetary conditions, slow government expenditure, and seasonal spending during the festive period may have contributed to the outflow of cash from current and transactional accounts.

At the same time, currency in circulation remained almost stable at Rs. 656 billion, showing that much of the liquidity moved outside the formal banking channels. This shift poses a potential risk to short-term liquidity management, especially as banks rely heavily on demand deposits to meet withdrawal requests and maintain cash reserves.

Economists warn that if the decline continues, commercial banks may face pressure to raise deposit rates further, worsening the cost of funds and impacting lending rates. While saving and call deposits increased slightly, the pace is insufficient to offset the contraction in demand money.

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