Final round of NRB bonds set for Wednesday release

The Nepal Rastra Bank (NRB) is set to issue final round of NRB bonds worth Rs12.79 billion on Wednesday as it aims to control the excess liquidity in the banking system that usually prevails at the end of the fiscal year. The country’s banking system has been facing excess liquidity for more than three years. With instruments like reverse repo, deposit collection failing to address the ‘systemic problem’, the central bank issued the NRB bond with one-year period--longer than other bonds issued normally for three months. As two-thirds of government’s spending take place in the last quarter of the fiscal year, the spent amount is channeled through the banks and financial institutions (BFIs) resulting in a high level of liquidity during the period. As the banks do not lend much during the first quarter, excess liquidity prevails. In order to address the problem, the central bank has already issued NRB bonds worth Rs40 billion over the last one month and a half. Of the total bonds issued, bonds worth Rs37.21 billion have been allocated to the BFIs. The NRB has planned to issue bonds worth Rs50 billion. As of Sunday, the banking sector has excess liquidity of Rs34 billion, according to the central bank. Min Bahadur Shrestha, chief of public debt management department at the NRB, said that the issuance of NRB bonds would help tame the excess liquidity in the next fiscal year through other instruments like reverse repo, treasury bills  and deposit collection whose maturity period remained from seven days to 90 days. Although the commercial banks have maintained a tighter credit to deposit ratio of late owing to late surge in lending, they continued to have excess liquidity. “It is also due to the fact that many banks which lack adequate government securities park the cash separately for security purpose,” said Shrestha. “So the NRB bonds also offer them an option of having adequate securities.” Source: ekantipur