Kathmandu. Over-liquidity management is now a challenge faced by the entire banks and financial sector. The deposit collected by the general public in various commercial banks, development banks and finance sectors of the country has reached the highest level so far. Spokesperson of Nepal Rastra Bank, Guru Poudel, said that there is around nine trillion rupees that can be invested in the banking system.

The challenge has increased in this sector as the demand for loans has not improved as the interest rate has been kept at a low level. When there is no demand for loans in the market, banks have also tightened their investments due to increasing risk. Due to the excess investable money in the market, the state has become poor despite having money. Deposits continue to be added as remittance flow has improved in recent years.

He said that excessive deposits will not lead to losses or sinking of banks, but there will be problems in capital growth. He says, “High deposits are a matter of concern for banks, but banks can make profits by investing in different areas. The central bank has been trying to encourage entrepreneurs to disburse loans through various schemes and programs.

Regular operations of the bank are also affected to some extent due to political instability, agitations at different times, changes in government in short notice and policies and programmes to be adopted by the government. The bank should move forward by making the best use of such opportunities. The economic activity of the country is driven by the financial activities of the bank to satisfy the customers by expanding investment and providing services as per the aspirations of the people. The general public trusts the bank.

Banks invest in various productive sectors by consolidating the capital scattered in small units across the country. The bank has been supporting the people who want to run micro enterprises by properly utilizing the local resources. Due to lack of financial awareness, there was a perception in the society that banks were established only for big businessmen and businessmen in the past. Even after the establishment of the bank, due to lack of financial literacy, the general public used to do business through commodity exchange. Banking transactions were not taken lightly.

The bank has played an important role in the development of small and cottage industries, establishment of medium and large industries and poverty alleviation. The bank has been working effectively in managing the government’s income and expenditure, providing foreign exchange services, keeping track of import-export trade and transactions of private sector entrepreneurs and companies.

Loans can be provided to the employees directly affected by the abnormal circumstances during the demonstrations of the Genji generation by adding a maximum of 0.50 percent point in the base rate for facilities including salary and allowances.

It is also expected that the loan provided at minimum interest rate to the institutions that provide employment to at least one hundred women and run export-oriented industries will also improve liquidity. These concessions given by the Rastra Bank can increase the demand for loans and speed up the economy.

Banks are worried about how to manage deposits when the demand for loans is low when there is enough money. The Rastra Bank (NRB) has been disseminating liquidity in the market when there is less liquidity and pulling it when there is more. Spokesperson Poudel said that the NRB has withdrawn Rs 900 billion at 2.64 percent for liquidity management.

In times of high liquidity, sufficient investable money in the banks and financial sector can be invested in productive sectors. The central bank has been providing policy support to the banks to develop their capacity to disburse loans. He said that the demand for loans will gradually increase due to the international situation, the approaching elections, financial security, etc.

Although there are opportunities for expansion of trade and industrialization as loans are available at comparatively low interest rates, liquidity management has not been possible due to political confusion and high cost of production of goods. This has a negative impact on the economy. As deposits in banks increase but loans do not increase, the interest cost of banks may increase and profit may decrease.

Therefore, the interest rate of the deposit starts falling. Depositors are forced to keep deposits in banks at low interest rates. As a result, the source of income of the depositors decreases. In the absence of an investment-friendly environment, there is no demand for loans, which increases the risk of investment flowing to unproductive sectors.

Excess liquidity reduces savings and increases unnecessary consumption, which leads to price rise. Similarly, an increase in imports at the national level will have a negative impact on the economy. It also affects the country’s balance of payments. Dr Resham Thapa, former head of the Central Department of Economics at Tribhuvan University, said that this could lead to an increase in the overall price level and lead to inflation.

Due to excess liquidity, there is a risk that the savings in the country can go abroad. High and low liquidity is not considered good in both financial systems. He said that there will be less liquidity problem if the banks invest more than their capacity when the demand for loans has increased. A

The banking system that started with paper process has developed the capacity to provide modern digital banking services to the service recipients through the use of information technology by changing the time with the development of information technology. With the establishment of bank branches across the country, more people are getting access to this area and the number of customers is also increasing.

Due to the policy of economic liberalization initiated by the government in the forties, the establishment of banks and financial institutions from the private sector has started increasing. Generally, liquidity is the condition in which any person or institution can easily withdraw and spend the financial assets saved in a bank at the time of need. In the banking and financial sector, liquidity is immediately understood as investible capital.

The bank’s liability has to be refunded to the depositor at the time of demand. The role of the bank has to be both profit-oriented and service-oriented. Liquidity, interest rates and inflation are closely linked in a country’s economy. When liquidity increases, interest rates fall and inflation rises. If there is a contraction in liquidity, interest rates will increase and inflation will come down. Liquidity management is critical to profitability in the financial system.

For liquidity management, the deposits kept by the general public in the bank are kept by the banks in the central bank. That is, since the Rastra Bank is the central bank, it keeps the amount to make the overall financial system dynamic with the aim of managing liquidity and gives a certain amount to the concerned bank in the form of interest.

The money collected in the bank from individuals and various organizations, companies, corporations, etc. is deposited in current, fixed and deposit accounts. The central bank manages liquidity so that the economy does not suffer due to liquidity imbalance. The central bank has allowed banks and financial institutions to maintain up to 90 percent of their deposits.

It is also known as the loan÷deposit ratio. If there is a lot of liquidity in the market, it absorbs it and if there is less liquidity, it distributes it. The demand for loans has not increased due to political instability and lack of investment-friendly environment. Due to this, banks and financial institutions are in a position to keep deposits at low interest rates.

The government has extended the deadline for repayment of concessional loans to industries and businesses affected by the Genji protests. It is expected to be able to repay by taking loans. The reconstruction fund will provide concessional loans and those who cannot repay the loans. This will also help in liquidity management, said economist Radheshyam Malakar. The government has already set up a reconstruction fund.

The Government of Nepal, Nepal Rastra Bank and insurance companies have initiated various relief measures to immediately reopen the industries, business and business establishments and economic activities affected by the extraordinary situation created during the Genji demonstrations.

Entrepreneurs are of the view that the demand for loan will increase if the damage caused by the protest is reconstructed. It is believed that the money accumulated in the financial system will be used for the revival. If deposits increase but loan investment does not increase, then the profit will decrease due to the interest expense of the banks and the dividend received by the concerned shareholders will also be affected.

Raras