NRB issuing another 'deposit call' of Rs10 arba from BFIs to address liquidity surplus

ShareSansar, September 12:

In a bid to mop up the excess liquidity from the banking system, Nepal Rastra Bank (NRB) has decided to collect the deposit from the banks for the second time since the instrument was introduced in the monetary policy of fiscal year 2071/72.

According to the NRB, it will collect the deposit of Rs 10 arba from the banks and financial institutions through the competitive bidding process. The interest rate of the deposit of the money is fixed through the auction.

The instrument will be issued on  Bhadra 31 which will have a maturity period of three months.

Earlier on last month, the central regulatory bank had absorbed Rs 20 arba from the banks and financial institutions which has drawn 225 bids worth Rs 38.15 arba from 25 BFIs.

The highest interest rate was quoted 0.9929 percent while the lowest was 0.1111 in the earlier issuance. The weighted average interest rate was fixed at 0.6911 percent last time.  

“The deposit call by the central regulatory bank for the second time worth of Rs 10 arba will somehow helped the banks to get rid of the liquidity surplus,” vice-president of Nepal Bankers Association (NBA), Upendra Poudyal, told ShareSansar. “However, the interest rate is very low which yields almost nothing for the banks,” added Poudyal, who is also the CEO of NMB Bank.

The BFIs are sitting against a heavy pile of cash with the volume of deposit rising due to increase of remittance while facing difficulties to float loans amid sluggish investment demands.

While there was around the liquidity of Rs 80 arba in the banking system, the NRB will mop up a total of Rs 30 arba from this instrument including the earlier deposit call.

Apart from that, the NRB has also been regularly conducting the reverse repo, a short term monetary operation having the maturity period of 1 week.

Unlike in the reverse repo instrument, the collaterals are not required in the deposit call for the BFIs to park their money at the central bank.

Sanima Bank’s CEO Bhuvan Dahal also said that the deposit call of the NRB will help in addressing the problem of liquidity to an extent.

“Since weighted interest rate is very low, it will help banks only in the short run. But, the issuance of the instrument is like something is better than nothing,” said Dahal.

He also opined that the BFIs may start quoting higher interest rates in the upcoming issue thinking that the instrument was available for them.

A senior level official, who is not authorized to speak with media, told ShareSansar that the additional amount of deposit call will provide BFIs a relief for at least three months.

“We will see how the situation will unfold in coming days than only we will decide upon issuing another deposit call,” the official said.