January 13: The Statutory Liquidity Ratio (SLR) of banks and financial institutions is more than the standard set by Nepal Rastra Bank (NRB). NRB issued a tight monetary policy in the current fiscal year (FY) and increased the mandatory cash reserve ratio (CRR) and SLR of banks.

Through the monetary policy, it was announced that the SLR should be increased from 10 to 12 percent for commercial banks, 8 percent for development banks and 7 to 10 percent for finance companies in addition to increasing the CRR from 3 to 4 percent. Although the CRR came into effect on August 17, the central bank had allowed the banks to implement the SLR by January.

As the deadline given by NRB is about to expire, banks and financial institutions have maintained the SLRs more than the limit specified by the central bank. According to the data of NRB, the average SLR of commercial banks is 21.09 percent in the first quarter of the current year which was 19.88 percent until last year.

Standard Chartered Bank, which had the lowest SLR in October, also attained 13.69 percent SLR. Similarly, Everest Bank has maintained the highest SLR of 24.48 percent. The SLR of most of the banks is above 15 percent.

Assistant Spokesperson of NRB, Narayan Prasad Pokharel says that the SLR of the banks is better than the prescribed limit due to the increased investment of the banks in the areas where SLR can be calculated. He said that since the monetary policy increased the CRR and this amount is also added to the SLR, its ratio is higher.

Banks can calculate their investments in government securities, the amount deposited in NRB for mandatory balance purposes, and the cash balance in their safe deposit boxes in the SLR. Similarly, the amount deposited by development banks and finance companies in commercial banks for CRR purposes, the amount deposited by provincial level financial institutions in other banks and financial institutions, the investment made in bonds issued by international financial institutions in Nepali currency, the deposits collected by NRB under open market transactions are taken into consideration while calculating the SLR.

However, if a loan is taken from a bank financial institution, including repo, permanent liquidity facility, as collateral for a security bond, there is a provision to reduce the loan amount and include only net investment in liquid assets.

If the banks are unable to maintain the SLR, they should calculate the SLR on the basis of the domestic deposit liability at the end of the previous month and submit the monthly statement to NRB. If the specified ratio is not maintained, there is a provision to impose a fine for the first time, double the bank rate for the second time, and triple the bank rate for the third or more times.