Decline in interbank rate indicates surplus liquidity in Nepal’s banking sector

KATHMANDU: Nepal’s interbank rate has witnessed a significant decrease to 1.36 percent in recent months, reflecting a substantial decline in liquidity as commercial banks grapple with an influx of deposits.

According to the latest data from the Nepal Rastra Bank (NRB), commercial banks have accumulated deposits totaling Rs 5.050 trillion as of Sunday. In a single day, the banks experienced a remarkable growth of Rs 20 billion in their deposit collection. Conversely, commercial bank lending stood at Rs 4.301 trillion.

Just last month, the interbank lending rate stood at 6.18 percent. In March, the rate exceeded eight percent, gradually decreasing to approximately seven percent in the subsequent two months.

Bankers have attributed the surplus liquidity to reduced demand for loans amid a surge in deposit collection. The ongoing economic downturn has contributed to decreased demand for goods and services, leading to a decline in the interbank lending rate during transactions, as explained by a banking official.

As a result of the liquidity surge, the credit-deposit ratio has also experienced a sharp decline. NRB records indicate that the ratio decreased by 0.28 percentage points, reaching 82.03 percent as of Sunday.