Nepal Rastra Bank to Absorb Rs. 25 Billion from Excess Liquidity

Nepal Rastra Bank (NRB) has announced that it will absorb Rs. 25 billion from the banking system in order to manage the growing excess liquidity. For a long time, banks and financial institutions have been struggling with surplus liquidity, but credit flow has not reached the expected level. Even though interest rates have continuously declined, lending has remained sluggish.

According to NRB, the central bank will use a 21-day deposit collection instrument to withdraw the funds. The principal and interest will be repaid on Ashoj 12. Participating banks and financial institutions will be allowed to bid for deposits with a minimum of Rs. 100 million and up to a maximum of Rs. 5 billion. The bidding process will be held today at 3 PM.

The interest rate will be determined through an auction process, and the collected deposits can be used as collateral in other banks and financial institutions, excluding NRB. Multiple bids with different interest rates will also be allowed. Only ‘A’, ‘B’, and ‘C’ class banks and financial institutions will be eligible to participate.

Since mid-last fiscal year, excess liquidity has emerged as one of the major challenges in Nepal’s banking sector. Due to weak demand in the market and slow business activities, banks have not been able to disburse loans as expected. This has forced NRB to actively step in to manage liquidity in the system.