Banking Khabar / Nepal Rastra Bank (NRB) is set to absorb additional liquidity from the banking system as excess liquidity continues to persist. The central bank will collect Rs. 30 billion from the banking system through a deposit collection instrument today.
According to NRB, the bidding for the deposit collection instrument will be conducted at 3:00 PM on Ashoj 21. The move is aimed at managing excess liquidity in the financial system amid increasing availability of loanable funds at banks and financial institutions.
Only Class ‘A’, ‘B’ and ‘C’ banks and financial institutions will be eligible to participate in the bidding. Participating institutions can submit bids starting from a minimum of Rs. 100 million up to the total amount called by the central bank. The bid amount must be divisible by Rs. 50 million.
The interest rate for the deposit collection instrument will be determined through the bidding process. Eligible banks and financial institutions may submit more than one bid at multiple interest rates in accordance with the prescribed procedure, according to NRB.
The deposit collection instrument will have a maturity period of one month. NRB has stated that the principal and interest on the funds collected through the instrument will be repaid on Kartik 18.
Excess liquidity tends to accumulate in the banking system when the growth in deposits and the availability of loanable funds exceed the pace of credit expansion. In such circumstances, NRB uses various monetary instruments to manage interbank interest rates and the overall liquidity position of the financial system.
Absorbing funds through the deposit collection instrument will help reduce excess liquidity available in the financial system in the short term. NRB has been using such monetary instruments depending on the direction of monetary policy and prevailing liquidity conditions in the banking system.
