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Banking System to get Cash Flow of 80 Percent from Local Levels' Reserve Fund

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Banking System to get Cash Flow of 80 Percent from Local Levels' Reserve Fund
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January 4: Nepal Rastra Bank (NRB) has allowed commercial banks dealing with government expenditure to consider 80 percent of the reserve funds of local levels as deposits. However, the concerned banks can consider such funds as deposits only till the end of the current fiscal year.

The central bank made such arrangements by issuing a circular on Monday, January 3. Prior to this, commercial banks could consider up to 50 percent of the reserve fund as deposits. NRB has increased the ceiling for the current fiscal year. As per the new directive, an additional 30 percent of the reserve fund of local levels will now flow to the banking system.

The central bank issued the new directive taking into consideration the liquidity crunch faced by the banks. Bankers expect this to ease the liquidity crisis to some extent.

As per the instructions of NRB, commercial banks can invest the reserve fund in productive sector. However, they are not allowed to invest the amount from the reserve fund on import and commercial purpose.

The Ministry of Finance had made an arrangement in mid-December allowing commercial banks to mobilize up to 80 percent of the reserve fund of local levels. The central bank has issued a circular on January 3 for the implementation of the arrangement made by the Ministry of Finance.   

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