BFIs Now Required to Maintain 90% of CRR Daily with Nepal Rastra Bank; Risk Weight on Share-Backed Loans Revised to 100%

Banks and financial institutions (BFIs) in Nepal will now be required to deposit a minimum of 90% of their mandatory Cash Reserve Ratio (CRR) with Nepal Rastra Bank (NRB) on a daily basis, effective from Jestha 18 (June 01). The central bank issued a circular on Wednesday, mandating that BFIs maintain at least 90% of the required CRR amount—4% of their average fortnightly deposit liabilities—at NRB each day.

Previously, banks were only required to maintain a daily minimum of 70% of the required CRR amount. This new provision increases the zero-interest funds that banks must hold with the central bank, which in turn is expected to raise their operating costs. Experts believe this could have a mild upward impact on the base interest rates published by banks.

In a separate directive, NRB also revised the risk weight on share-backed loans to 100%, effective immediately. Earlier, loans backed by shares exceeding Rs. 50 lakh carried a risk weight of 125%. Investors and stakeholders had long been urging the central bank to reduce the risk weight on such loans.

These changes were introduced as part of the third quarterly review of the Monetary Policy and have now been enforced through NRB's latest circular.