Banks and financial institutions (BFIs) have been investing in treasury bills issued under reverse repo to utilize their excess liquidity, but returns have been declining continuously over the last one month. BFIs have been awash in extra cash lately due to low demand for credit. According to Nepal Rastra Bank (NRB), excess liquidity in the banking system currently stands at around Rs 50 billion.
According to central bank data, the interest rate BFIs have been getting for subscribing to treasury bills under reverse repo is dropping. The interest rate of the latest reverse repo was just 0.06 percent.
Nevertheless, BFIs oversubscribed the treasury bills to the tune of Rs 43.87 billion against the issue of Rs 19.50 billion on April 10 suggesting how desperate they are to get rid of their excess liquidity.
The average interest rate of the reverse repo conducted on April 3 was 0.07 percent. The Rs 19.50 billion issue was oversubscribed with BFIs applying for Rs 43.23 billion worth of treasury bills.
The interest rate on treasury bills issued under reverse repo was relatively higher in earlier weeks. The average interest rate of the reverse repo conducted on March 27 was 0.08 percent and it was 0.09 percent on March 20. In the current fiscal year, the central bank has absorbed liquidity worth Rs 348 billion. Including the Rs 8.5 billion sale auction, the total liquidity mopped up by the central bank amounts to Rs 356.5 billion.
A senior NRB official said that the failure of banks to increase lending despite adequate cash reserves resulted in the banking system being left with excess liquidity. According to central bank statistics, deposits held by BFIs swelled by Rs 115.47 billion during the first eight months of this fiscal while loans grew by Rs 111.46 billion.
Bankers said that investing in government treasury bills has been a way of managing excess liquidity instead of earning a good income. “As the interest rate is so low, we cannot make significant gains from investments in government securities,” said Ashoke Rana, chief executive officer of Himalayan Bank.
However, he said that he was not complaining about the low interest rate as the central bank had been conducting reverse repos at the request of bankers.
source: the kathmandu post,17 april 2014
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According to central bank data, the interest rate BFIs have been getting for subscribing to treasury bills under reverse repo is dropping. The interest rate of the latest reverse repo was just 0.06 percent.
Nevertheless, BFIs oversubscribed the treasury bills to the tune of Rs 43.87 billion against the issue of Rs 19.50 billion on April 10 suggesting how desperate they are to get rid of their excess liquidity.
The average interest rate of the reverse repo conducted on April 3 was 0.07 percent. The Rs 19.50 billion issue was oversubscribed with BFIs applying for Rs 43.23 billion worth of treasury bills.
The interest rate on treasury bills issued under reverse repo was relatively higher in earlier weeks. The average interest rate of the reverse repo conducted on March 27 was 0.08 percent and it was 0.09 percent on March 20. In the current fiscal year, the central bank has absorbed liquidity worth Rs 348 billion. Including the Rs 8.5 billion sale auction, the total liquidity mopped up by the central bank amounts to Rs 356.5 billion.
A senior NRB official said that the failure of banks to increase lending despite adequate cash reserves resulted in the banking system being left with excess liquidity. According to central bank statistics, deposits held by BFIs swelled by Rs 115.47 billion during the first eight months of this fiscal while loans grew by Rs 111.46 billion.
Bankers said that investing in government treasury bills has been a way of managing excess liquidity instead of earning a good income. “As the interest rate is so low, we cannot make significant gains from investments in government securities,” said Ashoke Rana, chief executive officer of Himalayan Bank.
However, he said that he was not complaining about the low interest rate as the central bank had been conducting reverse repos at the request of bankers.
source: the kathmandu post,17 april 2014
LINK
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