Kathmandu. Nepal Rastra Bank is struggling to manage the excess liquidity in the banking system.
The banking system has been experiencing liquidity problems for a long time. Banks’ credit flow is sluggish. Deposit collection has increased significantly.
While banks are busy managing old loans, new loan flow has not been able to pick up speed. Banks are coming under more pressure due to the increase in bad loans and the accumulation of non-banking assets.
Due to the recent policy arrangements taken by the NRB, the private sector has not been very enthusiastic about taking loans. Due to which, the credit from banks has not increased much.
With the accumulation of liquidity in the banking system, the NRB is continuously withdrawing money using deposit collection tools. Banks are also being forced to give money to the NRB at low interest rates.
It also seems that the NRB has not been able to withdraw as much money from the banking system as it is trying to withdraw. So far in the current fiscal year, the NRB has withdrawn money using deposit collection tools 58 times. Looking at the data from the last 57 auctions, it seems that the NRB has been able to raise only one-third of the money it tried to withdraw.
The last 57 auctions for deposit collection instruments were intended to withdraw Rs 2925 billion from the banking system. However, banks have given only Rs 2028.8 billion to the NRB through these auctions.
Looking at the auctions so far, the average interest rate on deposit collection auctions is below 3 percent.
