Private Sector Credit Grows 1.6% as Government Deposits Surge Nearly 96% – NRB Monetary Survey 2025/26

According to the latest Monetary Survey report released by the Nepal Rastra Bank (NRB), Nepal’s banking sector witnessed a mixed trend in the first two months of FY 2025/26, with private sector credit showing modest growth and government deposits increasing sharply. The data reflects a cautious expansion of domestic credit alongside significant accumulation of government balances within the financial system.

Private Sector Credit Expansion

As of mid-September 2025, credit to the private sector rose by 1.6% (Rs 87.74 billion), reaching Rs 5.71 trillion. The growth indicates gradual recovery in lending activities driven by improved liquidity conditions and moderate business demand. Despite this increase, the pace of private-sector credit expansion remains slower compared to pre-pandemic averages, suggesting continued caution among banks and borrowers alike.

NRB officials attribute this steady growth to the banking sector’s focus on risk management, the impact of stable interest rates, and the ongoing shift towards productive lending sectors such as manufacturing, agriculture, and small enterprises. However, subdued investment appetite and sluggish project disbursement have kept overall credit growth moderate.

Government Deposits Surge Nearly 96%

In contrast, government deposits recorded an extraordinary rise of 95.5%, soaring to Rs 255.6 billion in mid-September 2025 from Rs 130.7 billion in mid-July. This sharp increase reflects low government expenditure and delayed capital budget implementation during the early months of the fiscal year. The accumulation of funds in the treasury has indirectly tightened domestic liquidity, reducing the need for short-term borrowings from the banking system.

Analysts interpret this deposit buildup as a temporary fiscal phenomenon, often seen during the initial phase of the budget cycle. However, prolonged retention of funds could constrain market liquidity and limit banks’ ability to expand credit if not balanced with effective expenditure flows.

Overall Monetary Conditions

While Net Foreign Assets (NFA) continued to strengthen — rising by Rs 153.68 billion (5.8%) — Net Domestic Assets (NDA) contracted by Rs 126.99 billion (–2.5%), reflecting restrained domestic liquidity expansion. The broad money supply (M2) grew only 0.3%, indicating that foreign sector inflows are offsetting slower domestic credit creation.

NRB’s cautious monetary stance is aimed at maintaining financial stability while ensuring sufficient liquidity to support productive sectors. The report suggests that fiscal and monetary coordination will be key to sustaining balanced liquidity growth in the months ahead.