Total deposits are 7.6 trillion 54 billion and loans are 5.7 trillion 46 billion, with a loanable amount of 1.1 trillion 45 billion rupees in banks and financial institutions.
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The average interest rate on bank deposits has decreased for Magh. Out of the 20 commercial banks in operation, 11 have reduced the maximum interest rate on one-year fixed deposits for Magh, while 9 have kept it constant. However, while two commercial banks have reduced the interest rate on ordinary deposits, one has increased it. 17 have kept it constant.
However, the average interest rate on one-year personal term deposits in commercial banks has decreased for Magh. In Poush, commercial banks had given a maximum average interest rate of 4.839 percent on one-year personal term deposits. This rate has been reduced to 4.685 percent for Magh.
The average interest rate on ordinary deposits has also decreased and reached a maximum of 3.278 percent in Magh. In Poush, such interest rate was 3.290 percent. Nepal Bank has increased the interest rate on ordinary deposits by 0.010 percentage points, while Citizens and Prime Bank have reduced the interest rate on ordinary deposits. Such interest rates of the remaining 17 banks are stable.
As of last Monday (28 Poush), the total deposits in banks and financial institutions are 7.654 trillion rupees. In the same period, the credit-deposit ratio (CD ratio) of banks and financial institutions is 74.23 percent. According to the instructions of the Nepal Rastra Bank, banks and financial institutions are allowed to lend up to a maximum of 90 percent of their total deposits. During the same period, the total credit flow of banks and financial institutions was Rs 5,746 billion. Based on this, the investable amount in banks and financial institutions was more than Rs 1,145 billion as of last Monday.
Banks and financial institutions are required to keep 20 percent of their total deposits in cash in banks. When all banks maintain liquidity at a rate of 20 percent, the amount spent is equal to about one percent of the credit liquidity (CD) ratio. Although banks and financial institutions are allowed to maintain a CD ratio of up to 90 percent of deposits, they are allowed to go up to 89 percent since they have to maintain 20 percent liquidity. Even based on these facts, it seems that banks and financial institutions have about Rs 1,066 billion in the financial system as of December 28.
Bankers say that despite the decrease in interest rates, the demand for loans in banks and financial institutions has not increased as expected. ‘It seems that the demand for loans of a trading nature has started to increase normally in the last one month. But the growth rate is very slow,' said Santosh Koirala, President of the Nepal Bankers Association, 'but the demand for credit from the productive sectors including industry, hotels has not increased.' He said that banks have been in a state of excess liquidity for a long time due to the continuous increase in deposits and the slow demand for credit.
After excess liquidity accumulated in banks and financial institutions, the Rastra Bank is withdrawing money from the market for one year by issuing 'debt bonds'. Accordingly, in the last two weeks, it has withdrawn 200 billion rupees from the market through nine debentures. With this, the Rastra Bank has so far withdrawn 2 billion rupees from the market through 9 debentures. For this, the Rastra Bank has issued debentures worth 25/25 billion rupees six times, 20 billion rupees twice and 10 billion rupees once.
Since there is no possibility of an immediate decrease in liquidity in the market, the Rastra Bank has stated that it is withdrawing money for a long period (one year). The decision to withdraw 200 billion rupees from the market through debentures at this stage has been made by the Rastra Bank Open Market Operations Management Committee. Based on the same decision, Rs 200 billion has now been withdrawn through bonds. However, the Rastra Bank has stated that additional amount can be withdrawn through bonds again depending on the market situation.
Rastra Bank bonds are a monetary instrument used by the Rastra Bank to withdraw money from the market for a long period (more than one year). The Rastra Bank has issued the bond for the first time in 10 years this year. Earlier, Rs 49.08 billion was withdrawn from the market through this instrument in the fiscal year 2072/73.
For about three years, the amount that can be lent (excess liquidity) has been accumulating in the financial system. For the sake of managing the liquidity of the financial system, the Rastra Bank has been regularly withdrawing money from the market as needed on two days a week (Sunday and Wednesday). For this, the Rastra Bank has been using the deposit collection and standing deposit facility (SDF) tools. Accordingly, the Rastra Bank used to withdraw money from the market for short periods of up to 6 months through the deposit facility.
But after the recent lack of improvement in the excess liquidity situation, the central bank has started withdrawing money through NRB bonds for one year. Officials of the NRB say that the bonds were issued for one year as the current excess liquidity in the financial sector is structural in nature and is not expected to decrease immediately.
The NRB had announced the issuance of NRB bonds through the monetary policy of the current fiscal year. The same policy has not been implemented yet. ‘To make the liquidity management of the structural nature in the banking system effective, NRB bonds will be issued as needed,’ the monetary policy of the current fiscal year states.
The NRB has withdrawn money from the market through similar bonds six times before this year. In the fiscal year 2049/50, the NRB had withdrawn Rs 24.88 billion from the market through NRB bonds. At that time, the current interest rate corridor was not in operation.
The NRB had been withdrawing money from the market for short or long terms, depending on the liquidity situation. At that time, the amount is excess liquidity, except for the amount that banks and financial institutions have to keep with the National Bank as a mandatory cash reserve (CRR). Based on that, money is being withdrawn from the market when there is excess liquidity in the market. Currently, the interest rate corridor is in operation. Therefore, the upper ceiling of the corridor (standing liquidity facility rate) is 5.75 percent.
The lower limit of the corridor (standing deposit facility) is 2.75 percent. Thus, when the lending rate between banks (interbank rate) is more than 5.75 percent, the National Bank sends money to the market. When the interbank rate falls below 2.75 percent, the National Bank withdraws money from the market.
The National Bank has been withdrawing money from the market for the last three years as the interbank rate has remained below 2.75 percent. The National Bank is preparing to withdraw money through this bond in the coming days as well. According to sources, the Open Market Operations Committee has already decided to withdraw Rs 2 trillion from the market through the National Bank bond. The source said that the committee can decide to withdraw more than that amount as per the requirement.
Earlier, the Rastra Bank had withdrawn Rs 65.72 billion in the fiscal year 2050/51, Rs 45.74 billion in the fiscal year 2051/52, Rs 9.37 billion in the fiscal year 2052/53 and Rs 49.8 billion in the fiscal year 2072/73 from the market. Since then, the Rastra Bank has not issued such bonds. Most of the money withdrawn from the market repeatedly for liquidity management has expired, while the remaining Rs 864.30 billion is still in investment, according to the Rastra Bank.
