The central bank has closed all the refinancing facilities — except for the Lender of the Last Resort — provided to banks and financial institutions as the liquidity situation has got comfortable in lately.
Nepal Rastra Bank (NRB) has annulled the provision of refinancing the banks and financial institutions that are in need of additional liquidity, spokesperson for the central bank Bhaskar Mani Gyawali said, adding that they are now in comfortable position with their liquidity situation so NRB has decided to close all the refinancing windows.
Central bank had introduced the provision, when the banks and financial institutions had faced light liquidity situation in June. The provision allowed commercial banks, development banks and finance companies eligible for refinancing facility up to 60 per cent of their core capital to manage liquidity. Then banks and financial institutions got their good loans refinances up to 80 per cent against the collateral of good loans at seven per cent interest rate. Earlier central bank only provided refinancing facilities to productive sector loans or to the loans floated to sick industries.
Since last couple of months the liquidity in financial sector has eased so that commercial banks alone are supposed to be in possession of surplus liquidity about Rs 40 billion. However, almost half of the development banks and finance companies are still in difficult waters in terms of liquidity. "There is 'Lender to Last Resort' provision for those financial institutions that need financial assistance to manage liquidity, moreover, the refinancing provision and 'Lender to Last is almost same," pointed out NRB's spokesperson.
The new directive regarding Lender to Last Resort provision issued in March will also provide finances to the banks and financial institutions, if they are unable to meet their immediate liabilities resulting from large withdrawal of deposit at the prevailing bank rate -that is -seven per cent.