January 9: Banks and financial institutions (BFIs) have accumulated more than Rs 600 billion of investable capital. Liquidity of the banks has increased significantly compared to deposit collection due to non-disbursement of loans. Liquidity is increasing even though Nepal Rastra Bank has continuously mopped excess liquidity through deposit collection tools.

According to the data of the central bank, BFIs have collected deposits of Rs 6085 billion and provided loans of Rs 5033 billion as of Saturday. The average credit-deposit ratio (CD ratio) of banks dropped to 79.96 percent on Saturday.

According to the provision that banks can give loans by maintaining this ratio up to 90 percent, the banks have the capacity to extend loans of Rs 610 billion.

Nepal Rastra Bank’s Deputy Spokesperson Dr Dilliram Pokharel says that there is more liquidity in the banking system as the expansion of credit flow has been lower than deposit collection in the current fiscal year (FY).

"Due to the increase in remittance inflow, the deposit growth rate of banks has increased in the current fiscal year," he said.

According to NRB, the bank deposits increased by Rs 314 billion in the current fiscal year while loans isbursement increased by s 155 billion only.

While reviewing the monetary policy, the central bank reduced the policy rate and revised the lending policy in areas such as real estate, shares, and vehicles. Subsequently, banks also reduced the interest rates on loans. However, credit flow has not increased relatively.

As there is more liquidity in the market, the central bank is constantly mopping excess liquidity.

The central bank has started mopping excess liquidity through deposit collection equipment from November 22. The central bank has mopped Rs 282.20 billion of liquidity from the market 18 times by January 4. The central bank is also issuing deposit collection equipment worth Rs 35 billion for a period of 14 days on Tuesday.

Due to excess liquidity, banks are forced to maintain the daily average interbank interest rate within the limits of the corridor. The interbank interest rate remained within the limits of the corridor after four months on last Tuesday, but it went down again from Thursday.

On Sunday, the interbank interest rate remained at 2.664 percent. According to the provisions of the corridor, this interest rate should be maintained at a minimum of 3 percent.

In the 'Interest Rate Corridor Procedure 2076', there is a provision to set the upper limit of the bank rate and the lower limit of the deposit collection rate and keep the interbank interest rate in between. The Nepal Rastra Bank has fixed the deposit collection rate at 3 percent through the first quarterly review of the current fiscal year's monetary policy. Earlier this rate was 4.5 percent.