Nepal Rastra Bank scraps refinancing facilities
The central bank closed all of its refinancing windows except ‘the lender of last resort’
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KATHMANDU, NOV 20 -
With the country’s banking system enjoying surplus liquidity for the last few months, the Nepal Rastra Bank (NRB) has scrapped all refinancing facilities, except ‘the lender of last resort’ policy.
Commercial banks are currently witnessing Rs 40 billion worth of surplus liquidity, thanks to increased deposit collection and sluggish lending.
The central bank had opened multiple refinancing windows, including normal and special refinancing and the lender of last resort facility, to ease the acute liquidity crunch that banks faced a few months ago. “With the improved liquidity situation, we felt there is no necessity of multiple refinancing instruments,” said Bhaskarmani Gnawali, spokesperson for NRB. “Now, if any BFI faces acute liquidity crunch, it will be given funds through the lender of last resort option.”
Under the lender of last resort policy, the central bank provides refinancing with certain strict conditions. Only those facing acute liquidity crunch get liquidity under this window.
Under the special refinancing, banks and financial institutions (BFIs) can get refinancing of up to 60 percent of their core capital for 120 days. They can get refinancing of up to 80 percent of the good loans put up as collateral. As per the usual refinancing measure, they can get refinancing of up to 40 percent of the core capital for six months.
Several BFIs availed these central bank facilities. More than a dozen of financial institutions (FIs) had applied to the Nepal Rastra Bank (NRB) for cash under the special refinancing measure amid protracted liquidity crunch last financial year. They had rushed to NRB to prevent any possible liquidity shortage due to large withdrawals. A total of 14 development banks and finance companies had applied to the central bank for refinancing by the second week of June in the last fiscal year and six commercial banks had applied for the usual refinancing facility, according to NRB.
Last year, the central bank rescued Vibor Bikas Bank by providing liquidity under the lender of last resort policy. The NRB, in the second week of June, 2011, had decided to provide up to Rs 500 million to Vibor. After it ran out of money following withdrawals by institutional depositors, Vibor had knocked on the central bank door, seeking rescue measures—either by taking over the management or by injecting liquidity.
Now, with the surge in liquidity, bankers have demanded that the central bank issue reverse repo to absorb the excess liquidity with them. Banks have also started to slash interest rates.
Posted on: 2011-11-20 08:58
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