BFIs Deposit Over Rs. 14.1 Trillion at NRB as Loan Demand Remains Sluggish

Banks and financial institutions (BFIs) have placed over Rs. 14.1 trillion at Nepal Rastra Bank (NRB) in the first half of the fiscal year 2024/25, reflecting surplus liquidity in the financial system as loan demand stays weak.

NRB records show that Rs. 1.486 trillion was absorbed through bidding, while Rs. 12.514 trillion was collected under the Standing Deposit Facility (SDF) between mid-July and mid-January. Spokesperson Ramu Paudel mentioned that NRB, in coordination with the Ministry of Finance, is working on a new approach to manage the surplus liquidity.

BFIs saw their loanable funds more than double during this period, with total lending reaching Rs. 5.425 trillion and the credit-to-deposit ratio at 79.41%. To manage liquidity, NRB has been accepting deposits via auctions, while the SDF allows BFIs to earn a 3% interest rate on excess funds. However, in the second quarter, the pace of liquidity absorption slowed, with NRB collecting Rs. 1.270 trillion between mid-October and mid-January.

Former NRB Governor Dipendra Bahadur Chhetri warned that excessive liquidity absorption could slow economic activity, suggesting that BFIs should focus on funding small-scale projects instead of parking funds at NRB.

Adding to the concerns, BFIs are also dealing with rising non-banking assets due to an increase in bad loans. These assets, consisting of collateral seized from defaulting borrowers, have reached Rs. 38.26 billion—a 1.7% rise—indicating growing asset management challenges for banks.