Central Bank Issues NPR 35 Billion Deposit Collection Instrument

Kathmandu, Nepal – The Nepal Rastra Bank has once again issued a NPR 35 billion deposit collection instrument for 21 days to manage the excessive liquidity in the financial system. This comes after the previous NPR 30 billion deposit collection tool issued on 3rd of Baisakh, which has now matured. The central bank is now withdrawing an additional NPR 35 billion from the financial system.

Interested banks and financial institutions can submit their applications for this instrument by 3:00 PM today. The interest rate for this instrument will be determined through bidding, and the interest payment date is set for the 14th of Jestha. The minimum amount that can be requested is NPR 10 crore, and the maximum amount is capped at NPR 5 crore.

Earlier, the central bank had also issued NPR 50 billion worth of 21-day deposit collection instruments twice. In total, 13 banks and financial institutions had raised NPR 27.5 billion, with an average interest rate of 3%. This follows the central bank's regular issuance of such instruments, having already done so five times in Baisakh alone.

The central bank is working to manage liquidity while ensuring that the interbank interest rate does not fall below the lower limit of the interest rate corridor. The lower limit for the interest rate corridor is set at 3%, meaning banks can earn up to 3% interest on the funds they place with the central bank via these deposit collection instruments.

For a long time, the banking system has been facing an excess liquidity situation. Despite continuous reductions in interest rates, loan disbursement has remained slow. This has led the central bank to repeatedly withdraw money from the system to manage liquidity. The central bank has been managing liquidity through both permanent deposit facilities (SDF) and deposit collection instruments to maintain financial stability.

According to the Nepal Rastra Bank, currently, the total deposits in the banks and financial institutions amount to NPR 68.52 trillion, with NPR 55.10 trillion in loans and investments. Given that banks can lend up to 90% of their deposits, this leaves approximately NPR 6.57 trillion in investable funds within the banking system.

This move is another strategy by the central bank to strengthen the banking system and maintain financial stability in Nepal.