Central bank injects liquidity to cash-strapped banks

As banks started to feel liquidity crunch central bank today injected liquidity through Rs 5000 million repo.
The inter-bank lending has reached to 12.50 per cent yesterday due to liquidity crunch in the market.
"But today, inter-bank rate has come a little low to 12.25 per cent expecting liquidity through repo could normalise the tight liquidity situation," said Civil Bank chief operating officer Sarbendra Mishra.
In normal condition, the inter-bank lending rate stands at around four per cent but liquidity crunch has forced the inter-bank lending rate to 12.50 per cent since the starting of this week.
However, Mishra opined that it is a seasonal impact as at the end of second quarter every fiscal year, the banks' experience liquidity crunch. "After the 21-day repo of Rs 5000 million, the inter-bank rate might come down to 10 per cent," he added.
Dealyed budget and low government spending have tightened money supply in the commercial bank forcing them to borrow from other commercial banks that are in comfortable position to maintain mandatory Credit to Deposit (CD) ratio that is 85 per cent fixed by the central bank.
The commercial bank's deposit that stood at Rs 631 billion by the end of fiscal year 2009-10 has dropped to Rs 619.49 billion by the first quarter of the current fiscal year. "By the second quarter of current fiscal year, the deposit stood at Rs 627.08 billion and loans and advances stood at Rs 503.03 billion," according to the central bank. "But by the seventh month of current fiscal year the deposit increased by Rs 7.64 billion only to Rs 634.72 billion but loans and advances increased by 49.35 billion to Rs 552.38 billion," Nepal Rastra Bank's data revealed.
Similarly, inter-bank transaction of commercial banks reached Rs 225.43 billion against Rs 175.49 billion in the same period of last fiscal year, it said, adding that liquidity injection through standing liquidity facility amounted to Rs 136.64 billion. "Of the total standing liquidity facility, the outstanding amount was Rs 5.71billion as at mid-February 2011."
During the seven months of the current fiscal year 2010-11, government budget also remained at a surplus of Rs 12.33 billion due to a high growth in resource mobilisation relative to total government expenditure creating tight liquidity situation in the money market.
"In the same period last fiscal year, budget surplus had stood at Rs 8.42 billion," according to the central bank.