Financial Institutions’ Liquid Funds Increase by 25%: NRB Data Shows Improved Liquidity

Nepal’s financial sector has witnessed a strong improvement in liquidity, with liquid funds of banks and financial institutions rising by 25.4 percent year-on-year, reaching Rs. 723.24 billion in mid-August 2025, according to the latest Other Depository Corporation Survey published by Nepal Rastra Bank (NRB). This surge marks one of the most notable recoveries in the banking sector’s short-term cash position in recent years.

NRB data show that this improvement was driven primarily by higher balances held with the central bank, which rose by 23.4 percent to Rs. 337.63 billion, and foreign assets held abroad, which jumped by a striking 41.7 percent to Rs. 290.37 billion. Meanwhile, cash in hand slightly decreased by 3.2 percent, suggesting that financial institutions are managing liquidity more efficiently through digital channels and central bank deposits rather than physical currency holdings.

Economists say the increase in liquid funds reflects lower credit disbursement pressure and moderate growth in deposit mobilization, resulting in excess reserves within the system. Following the liquidity crisis seen in 2022–23, banks have become more cautious, keeping a larger share of funds readily available to meet payment obligations and regulatory reserve requirements.

The NRB’s deposit auction and standing deposit facility have also helped banks park surplus liquidity safely, further strengthening the system’s stability. Experts believe the current trend indicates a balanced monetary environment, where liquidity is adequate to support credit growth but not excessive enough to fuel inflation.

However, analysts caution that the rise in liquid assets may signal slower loan demand and subdued investment activity in the private sector. To sustain healthy credit expansion, they suggest that monetary policy should focus on encouraging productive lending without triggering asset bubbles or inflationary risks.