Liquidity surplus problem yet to go away: NRB holding another deposit auction Rs 10 arba within a week

ShareSansar, September 24:

Liquidity surplus is yet to go away.

Though a huge amount of money stacked in the banks and financial institutions (BFIs) is likely to enter in the market for the Dashain and Tihar celebration, the NRB is once again absorbing Rs 10 arba from the banking system through its newly introduced monetary instrument ‘Deposit Auction’.

The central bank called the bids from the BFIs for the deposit this time within a week of deposit collection held last time.

According to central bank officials, the current liquidity surplus in the BFIs currently stands at Rs 23 arba. Earlier, the time difference between the first and second auctions was a month.

This is the third time that the central regulatory bank is mopping up the liquidity from the banking system through this instrument introduced in the Monetary Policy of 2071/72. The NRB has already soaked Rs 30 arba from the banking system within two months period.

According to the senior level official of the NRB, the deposit auction was going to be held within the short period of time as the last call deposit collection was oversubscribed by 2.5 times. “The oversubscription of the deposit auction showed that the problem of liquidity still grips the BFIs.

Since the BFIs are still awash with excessive cash, we have decided to go for another deposit collection of Rs 10 arba,” said the senior level official. The deposit collection was oversubscribed by 2.5 times, drawing 209 bids from 31 BFIs.

The weighted interest rate had gone down in the second deposit collection in comparison to the first collection, signaling the banks’ tight competition to quote less interest rate to park their excessive cash in the central bank. The weighted interest rate plunged to 0.585 percent from 0.6911 percent.

The NRB is also in no mood to issue another deposit auction for the time-being. “With absorbing Rs 10 arba more, the liquidity surplus problem will be addressed to an extent.

Now the BFIs should also make their attempts to increase lending rather than depending always on the NRB instrument,” the senior level official added. “However, that does not mean that we will not collect the deposit now. We will assess the liqduity situation and hold another auction only if the problem is very serious now.”

While bankers agree that the only solution to the problem is the expansion of the lending, they lament the lack of demands for the investment.

“Bidding on the auction which does not even meet our cost of the bidding is not a choice to us. We also want to expand lending. However, there are no major demands for the lending,” NMB Bank’s CEO Upendra Poudyal said.

According to the bankers, the deposits in the BFIs will rise significantly as the remittance flow increases in the festival season.