NRB Withdraws Rs 40 Billion to Manage Liquidity
25th March 2026, Kathmandu
The Nepal Rastra Bank (NRB) has initiated a strategic withdrawal of Rs 40 billion from the banking sector to address persistent excess liquidity.
NRB Withdraws Rs 40B
This move, announced in March 2026, utilizes the central bank’s deposit collection instruments to stabilize the financial market. As total deposits in the banking system have surged past the Rs 7.7 trillion mark, the NRB is taking proactive steps to ensure that the surplus cash does not lead to unhealthy fluctuations in interest rates or long-term structural imbalances.
Mechanics of the Liquidity Withdrawal
The Nepal Rastra Bank (NRB) operates these withdrawals through a competitive bidding process known as a deposit collection auction. This mechanism allows the central bank to “mop up” excess funds from commercial banks and other financial institutions for a specified period.
Auction Date: Chaitra 8, 2082 (March 22, 2026).
Total Amount: Rs 40 billion.
Tenure: The deposits are collected for a short-term duration, typically ranging from 14 to 21 days.
Participation: Only “A,” “B,” and “C” class financial institutions (Commercial Banks, Development Banks, and Finance Companies) are eligible to participate.
The Auction Process and Interest Rates
For the Rs 40 billion withdrawal, the NRB employs an online bidding system where banks propose the interest rates they are willing to accept for lending their surplus cash to the central bank.
Bidding Increments: Participating institutions can bid in minimum increments of Rs 10 million and maximum increments of Rs 50 million.
Rate Determination: The interest rate is determined through the auction. Typically, the NRB prioritizes bids with the lowest interest rates to minimize its cost of borrowing.
Interest Corridor: This instrument helps keep the short-term interbank interest rates within the NRB’s target “Interest Rate Corridor,” preventing them from falling too close to zero.
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Why is There Excess Liquidity?
The primary driver behind the Nepal Rastra Bank (NRB) intervention is a mismatch between deposit growth and credit demand. While Nepalese citizens and businesses continue to deposit money into banks, the demand for new loans has remained sluggish due to several macroeconomic factors:
Slow Credit Demand: Industries and productive sectors have shown a cautious approach toward new investments.
Surplus Remittances: Strong inflows of formal remittances from abroad have consistently bolstered bank deposits.
Low Lending Rates: Despite a significant drop in lending interest rates, the “wait and watch” sentiment among borrowers persists.
Without this withdrawal, banks would be forced to hold idle cash that earns no return, or they might engage in risky lending practices to offload the surplus. By absorbing Rs 40 billion, the NRB provides a safe “parking spot” for these funds at a modest interest rate (currently hovering around 3%).
Impact on the Financial System
The Nepal Rastra Bank (NRB) liquidity management strategy has a direct impact on the stability of the Nepalese economy.
Interest Rate Stability: By removing excess cash, the NRB prevents the interbank rate from crashing, which helps maintain a predictable environment for both savers and borrowers.
Inflation Control: Managing the money supply is a key tool for the NRB to keep inflation within its target range of 5% to 6%.
Banking Health: It ensures that banks maintain a healthy Credit-to-Deposit (CD) ratio, which is currently mandated to be below 90%.
Conclusion
The Nepal Rastra Bank (NRB) withdrawal of Rs 40 billion is a calculated monetary intervention designed to protect the integrity of Nepal’s financial system. Through transparent auctions and strategic short-term instruments, the central bank is successfully navigating a period of unprecedented liquidity. This move reassures investors and depositors that the NRB is committed to prudent fiscal management and the long-term health of the banking sector.
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