NRB Withdraws NPR 40B to Absorb Excess Liquidity from Banking System

5th April 2026, Kathmandu

The Nepal Rastra Bank liquidity withdrawal initiative has once again come into focus as the central bank moves to absorb excess liquidity from the banking system.

NRB Withdraws NPR 40B

On Chaitra 22, 2082, Nepal Rastra Bank (NRB) officially announced it will withdraw NPR 40 billion (equivalent to 40 Arba) through a specialized deposit collection instrument.

This strategic step reflects the ongoing efforts by the central bank to manage surplus funds and stabilize the financial system in early 2026. As the lender of last resort and the primary monetary authority, the NRB uses these tools to ensure that the massive influx of loanable funds does not lead to volatility in interest rates or unproductive inflationary pressure.

Why Nepal Rastra Bank is Withdrawing Liquidity

The Nepal Rastra Bank liquidity withdrawal decision is primarily driven by excessive liquidity currently saturating the banking system. Due to a period of relatively weak credit demand across various industrial sectors, banks and financial institutions (BFIs) are holding significant surplus funds. Left unmanaged, these funds can distort short-term interest rates and reduce the overall efficiency of financial intermediation in the country.

To counter this, the NRB regularly employs monetary tools like deposit collection and reverse repos to “mop up” excess cash from the system, effectively tightening the money supply to align with the current economic goals of the government.

Key Details of the Deposit Collection Instrument

The central bank has provided clear and transparent specifications for this specific liquidity withdrawal operation to ensure maximum participation from eligible institutions.

Main Features of the Auction

• Total Amount: NPR 40 billion (40 Arba)
• Date of Auction: Chaitra 22, 2082 (April 2026)
• Time of Bidding: 3:00 PM (via the Online Bidding System – OBSS)
• Instrument Tenure: 56 days
• Maturity Date: Jestha 17, 2083

The final interest rate for these deposits will be determined through a competitive bidding process, where the market dictates the yield based on the current supply of funds.

Bidding Criteria and Participation Limits

Eligible participants must follow strict bidding guidelines to ensure the process remains orderly and professional. The Nepal Rastra Bank liquidity withdrawal auction is open to large-scale institutional players with the following constraints:

• Minimum Bid Amount: NPR 100 million (10 Crore)
• Bidding Multiples: Increments of NPR 50 million (5 Crore)
• Maximum Limit: A single institution can bid up to the total announced amount of 40 Arba.

Banks are permitted to submit multiple bids at different interest rates, allowing them the flexibility to manage their treasury portfolios based on their internal liquidity forecasts.

Eligible Financial Institutions

Only licensed financial institutions regulated by the Nepal Rastra Bank are permitted to participate in this liquidity withdrawal. This includes:

• Class ‘A’ Commercial Banks
• Class ‘B’ Development Banks
• Class ‘C’ Finance Companies

This restriction ensures that only credible, regulated entities with significant impact on the national money supply are involved in the stabilization process.

Interest Rate and Allocation Mechanism

The Nepal Rastra Bank liquidity withdrawal process follows a mathematically structured allocation method designed to be fair and cost-effective for the central bank:

Priority for Low Rates: Bids with lower interest rates get priority for allocation.

Amount Fulfillment: The allocation continues downward through the bid list until the total 40 billion amount is fulfilled.

Pro-Rata Basis: If multiple institutions submit bids at the same interest rate and the total exceeds the remaining available amount, the allocation is done on a pro-rata basis.

This competitive approach ensures that the central bank absorbs liquidity at the most favorable market rates possible.

Additional Conditions for the 56-Day Instrument

The NRB has outlined several operational rules to maintain discipline during the auction:

Right of Rejection: The central bank reserves the right to accept or reject bids partially or fully without justification.

Direct Deduction: Funds will be deducted directly from the participating institution’s settlement account with the NRB.

Account Balance: Insufficient balance at the time of settlement may lead to the institution being blacklisted from future auctions.

No Early Exit: Premature withdrawal of these deposits is strictly prohibited before the maturity date of Jestha 17, 2083.

Furthermore, these specific collected deposits will not be counted under the Cash Reserve Ratio (CRR) but will be considered eligible for the Statutory Liquidity Ratio (SLR) and overall liquidity ratio calculations.

Market Context and Economic Implications

Currently, the banking sector of Nepal is facing a unique challenge where deposit growth has outpaced loan disbursement. This has led to a situation where financial institutions are placing billions with the NRB at interest rates hovering around 3% to earn a minimal return on idle cash.

Impacts of the Liquidity Withdrawal
Positive Effects: It controls the “free-fall” of short-term interest rates and enhances the transmission of the central bank’s monetary policy.

Challenges: Frequent withdrawals highlight a sluggish credit market. This indicates that businesses are being cautious about taking new loans, which could point to slow overall economic activity in 2026.

Final Thoughts

The Nepal Rastra Bank liquidity withdrawal of NPR 40 billion serves as a critical barometer for the health of the financial sector in Nepal. While such moves are essential to maintain monetary stability and curb potential inflation, they also signal a need for more robust credit demand in the private sector.

For investors, bankers, and economic analysts, monitoring these frequent interventions provides vital insights into the direction of future interest rates and the overall trajectory of the national economy. As the NRB continues to manage the delicate balance between excess cash and economic growth, staying informed on these liquidity withdrawals remains essential for navigating the financial landscape of Nepal.

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