The Nepal Rastra Bank (NRB) has amended its Unified Directive 2081, mandating banks and financial institutions to increase the proportion of their Cash Reserve Ratio (CRR) held in cash with the central bank from 70% to 90%. This adjustment necessitates an additional Rs 50 billion to be deposited with the NRB.

Previously, banks were required to maintain 70% of their CRR in cash with the NRB, with the remaining 30% allowed in other liquid assets. Under the new directive, 90% of the CRR must be held in cash, effectively increasing the liquidity banks must deposit with the central bank.

As of now, banks and financial institutions hold approximately Rs 6912 billion in deposits. To meet the CRR requirement, they have been allocating around Rs 276 billion, with Rs 193 billion deposited in cash at the NRB. With the new directive, the cash portion must increase to Rs 248 billion, necessitating an additional Rs 55 billion in cash reserves.

NRB spokesperson Ramu Paudel stated that the adjustment addresses the persistent excess liquidity in the financial system.

"The financial system has been experiencing surplus liquidity for an extended period. This measure aims to manage that excess by increasing the mandatory cash reserves," he said.

Financial institutions are required to hold CRR balances with the NRB without earning any interest. A senior banker noted that this change could reduce banks' earnings and potentially lead to higher interest rates.

"Managing excess liquidity through permanent deposit and deposit collection instruments has become costly. Increasing the daily mandatory cash reserve limit is a more effective approach," the banker explained.

In the current fiscal year, the NRB has withdrawn liquidity amounting to Rs 1776 billion through permanent deposit facilities and Rs 264.92 billion via deposit collection instruments. On Wednesday alone, the NRB called for mopping Rs 80 billion through deposit collection instruments, with banks offering Rs 133.95 billion.

Additionally, the NRB has revised the risk weight for share mortgage loans. Previously, loans exceeding Rs 5 million carried a 125% risk weight, while smaller loans were at 100% risk. The central bank has now standardized the risk weight at 100% for all share-backed loans.