July 26: Nepal Rastra Bank (NRB) has decided to take necessary measures for mopping excess liquidity in banks due to the poor demand for loans.

It is estimated that banks are currently having excessive liquidity of Rs 200 billion. The central bank on Thursday (July 23)decided to issue reversal repo (repurchase agreement) of Rs 20 billion with maturity period of one week.

NRB in its new monetary policy has increased the core capital plus deposit (CCD) ratio of banks from 80 percent to 85 percent targeting increased flow of loans to Covid-19 affected sector. This provision, which will last till the end of the current fiscal year, is expected to raise the excess liquidity to Rs 120 billion in average.

Banking expert Analraj Bhattarai stresses on making the economy vibrant to attain the 7 percent economic growth target set by the government. Bhattarai believes that the government has to ease the liquidity crunch to attain this target.

“The lending capacity of banks has increased after the NRB increased the CCD ratio and removed buffer capital. People seeking loan can avail loan at low interest rate if there is sufficient liquidity in the market,” said Bhattarai.

NRB Spokesperson Dr Gunakar Bhatta informed New Business Age that the central bank is preparing to issue new directives within a few days.

“Increasing the CCD ration will increase liquidity in the market,” said Bhatta, adding, “We are preparing to issue new directives in this regard very soon.”

According to Bhatta, the new directive will stabilize the economy.

Meanwhile, President of Nepal Bankers Association, Bhuvan Dahal, says simply increasing the CCD ratio alone will not increase the liquidity in the market.

However, Bhatta insists that the new provision will increase the liquidity which in turn will increase the flow of investible capital. This is expected to reduce the rate of interest.