Nepal Rastra Bank to Absorb 40 Billion to Manage Persistent Excess Liquidity

22nd April  2026, Kathmandu

In a continued effort to maintain monetary stability, Nepal Rastra Bank has announced its plan to absorb 40 billion from the banking system through a deposit collection instrument. This move comes as banks and financial institutions continue to grapple with a significant surplus of investable funds due to a prolonged period of weak credit demand.

NRB Absorb 40 Billion

The central bank intends to mobilize this substantial amount for a duration of 168 days, providing a medium-term solution to mop up the excess cash currently sitting idle in the financial sector. By actively managing this liquidity, the central bank aims to prevent sharp fluctuations in interest rates and ensure a balanced financial environment.

The current situation of excess liquidity is primarily driven by a lack of significant growth in lending activities across the country. Despite having a total deposit base exceeding 7.8 trillion, banks have found it challenging to expand their loan portfolios significantly.

As a result, many financial institutions are willing to park their surplus funds with the central bank, even at competitive interest rates, rather than keeping them as non-earning assets. To prevent imbalances and maintain the corridor for interbank interest rates, the central bank utilizes various tools such as deposit collection instruments and standing deposit facilities. These mechanisms are essential for regulating the money supply and stabilizing the broader financial system.

The participation in this liquidity mopping drive is strictly limited to licensed financial institutions. Only Class A commercial banks, Class B development banks, and Class C finance companies are eligible to take part in the bidding process. The entire auction will be conducted through the central bank’s online bidding system software, where interest rates will be determined through a competitive mechanism.

This ensures that the process remains transparent and that the market forces of supply and demand dictate the cost of the funds being absorbed.

The allocation of funds under this deposit collection instrument follows a specific competitive bidding mechanism designed to favor the lowest cost of funds for the regulator. Priority is given to those institutions that offer the lowest interest rates, and the allocation continues until the total target of 40 billion is met.

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There are also specific rules regarding the size of the bids; the minimum bid amount is set at 100 million, and all bids must be submitted in multiples of 50 million. These requirements allow for broad participation from institutions of various sizes within the banking industry.

Investors and financial managers should take note of the repayment timeline for this instrument. The principal amount along with the accrued interest will be repaid on October 7, 2026, which corresponds to Ashoj 21, 2083, in the Nepali calendar.

This 168 day period allows the central bank to lock away the surplus funds for several months, potentially bridging the gap until credit demand picks up later in the year. The interest earned on these deposits provides a safe, though modest, return for the participating banks while helping the central bank meet its macroeconomic objectives.

This proactive stance by Nepal Rastra Bank highlights the ongoing challenges within the national economy. While high liquidity and falling interest rates can theoretically stimulate investment, the current weak demand for loans suggests that businesses and individuals remain cautious.

By mopping up the excess, the central bank prevents the interbank rate from falling too low, which could otherwise lead to capital flight or other inflationary pressures. The use of such instruments is a standard practice in open market operations, ensuring that the banking sector remains disciplined and that the value of the currency is protected.

In conclusion, the decision by Nepal Rastra Bank to absorb 40 billion is a strategic intervention to manage the surplus cash currently circulating in the market. With a clear bidding process, defined participation rules, and a set repayment date in October 2026, the central bank is providing a clear roadmap for liquidity management.

As the financial year progresses, the market will be watching closely to see if credit demand begins to normalize or if further interventions will be necessary to keep the banking system in balance. This move serves as a reminder of the central bank’s vital role as the guardian of financial stability in Nepal, working tirelessly to harmonize the interests of banks, borrowers, and the overall economy. Stay tuned for further updates on the results of the bidding and the impact of this move on market interest rates.

For More: NRB Absorb 40 Billion