Liquidity Glut Deepens: Bank Deposits Skyrocket to NPR 8.53 Trillion Amid Sluggish Credit Demand as NRB Moves to Absorb NPR 200 Billion

Liquidity Glut Deepens: Bank Deposits Skyrocket to NPR 8.53 Trillion Amid Sluggish Credit Demand as NRB Moves to Absorb NPR 200 Billion

KATHMANDU

Nepal’s financial system is currently swimming in an unprecedented sea of idle liquidity, exposing a widening disconnect between expanding deposits and stagnant credit expansion in the domestic economy. According to the latest macroeconomic data released by Nepal Rastra Bank (NRB), total deposits parked across banks and financial institutions (BFIs) have surged to a staggering 8,532 billion rupees (NPR 8.53 trillion). In stark contrast, total credit disbursement crawls significantly behind at 6,118 billion rupees (NPR 6.11 trillion), laying bare a persistent industrial and commercial hesitation in capital investment.

Commercial Banks Account for the Lion’s Share of Deposits and Credit

A granular examination of the financial architecture reveals that commercial banks command the vast majority of both capital mobilization and lending operations. Out of the 8,532 billion rupees in total system deposits, commercial banks alone hold 7,715 billion rupees, while other financial institutions—such as development banks and finance companies—account for the remaining 817 billion rupees.

On the lending front, out of the total credit portfolio exceeding 6,118 billion rupees, commercial banks have extended 5,438 billion rupees, leaving other BFIs with a modest credit footprint of 680 billion rupees. This heavy concentration underscores how premier commercial institutions bear the brunt of managing surplus liquidity when credit creation slows down across the broader economy.

Plunging Credit-to-Deposit Ratios and Collapsing Interbank Rates

The anaemic demand for loans in productive sectors, retail markets, and industrial ventures has drastically altered key monetary health indicators. The banking sector’s average Credit-to-Deposit (CD) ratio has plummeted to 70.96 percent—comfortably below regulatory ceilings, yet signaling severe capital idleness for profit-seeking institutions.

Compounding this picture, the interbank interest rate has softened to just 2.75 percent. When banks can borrow cheaply from one another at sub-3 percent rates, it reflects a complete absence of short-term liquidity stress within the interbank market, transforming excess capital from an operational asset into a costly carrying burden for balance sheets.

Central Bank Steps In: NRB to Mop Up NPR 200 Billion

Faced with a massive structural surplus and the risk of downward pressure on interest rates, the central bank has aggressively stepped into the open market to sterilize excess liquidity. In its latest monetary management operation, Nepal Rastra Bank issued a formal notice to mop up a massive 200 billion rupees from the banking system for a 20-day maturity period.

This liquidity absorption exercise is designed to prevent short-term rates from collapsing completely and to maintain orderly monetary conditions. However, financial analysts point out that while mopping up funds provides temporary relief to banking treasuries, the ultimate cure for the current liquidity glut lies in reviving business confidence, accelerating capital expenditure, and stimulating real credit demand across Nepal's productive sectors.