Rastra Bank has decided to withdraw 80 billion Nepali rupees from the market today for a period of 42 days. This move aims to manage excess liquidity in the banking and financial sector.
Rastra Bank has invited banks and financial institutions to participate in an online bidding process by 3 pm today. Only banks and financial institutions classified under ‘Ka’, ‘Kha’, and ‘Ga’ categories can take part in the bidding for the deposit collection instruments.
The bidding will be done in multiples of 10 million and 5 million rupees, ensuring that the remaining amount is divisible accordingly. The interest rate will be decided through the bidding, and multiple bids with different rates can also be placed.
The instruments purchased through this bidding can be used as collateral by the participating banks and financial institutions.
Since the beginning of the new fiscal year, the liquidity available for loans in banks and financial institutions has increased significantly. Data from Rastra Bank shows that average liquidity grew from 6 trillion rupees in the previous 11 months to about 10.5 trillion rupees by mid-June.
As of mid-June, total deposits in the banking sector stood at approximately 72.92 trillion rupees, while the credit-deposit ratio was 75.78 percent. Banks are allowed to lend up to 90 percent of their total deposits, according to Rastra Bank guidelines.
Currently, banks and financial institutions have an estimated excess liquidity of around 1.05 trillion rupees. However, they must keep 20 percent of their total deposits as liquidity with the bank itself. Maintaining this liquidity at 20 percent causes additional costs equivalent to about 1 percent of the credit-deposit ratio.
Because of this, banks effectively can maintain a credit-deposit ratio of up to 89 percent instead of 90 percent. Experts estimate that as of mid-June, about 976.9 billion rupees remain available as loanable funds in the financial system.
Due to this surplus liquidity, Rastra Bank has recently been withdrawing money from the market for longer periods to keep the economy stable.
