Return of `hidden cash' eases liquidity crunch

Notes of Rs. 1000 and Rs.500 denominations worth Rs. 10 billion which disappeared from the banking system are back resulting in the liquidity crunch being eased. It was suspected that people had hidden the cash in their homes fearing government action under the voluntary disclosure of income scheme (VDIS). The huge number of applications to purchase bonds and treasury bills issued by Nepal Rastra Bank (NRB) clearly show that the cash crisis has ended.

According to NRB, its bonds and treasury bills issues on Sunday and Monday were oversubscribed five-fold and four fold respectively."It seems that the hidden money has come in to the banking system," said Rabindra Pandey, executive director of NRB. "It has also strengthened the situation of liquidity."The central bank has received applications for bonds worth Rs. 16.68 billion when the issue was worth Rs. 3 billion.

The central bank received application worth Rs. 12.52 billion for bonds allocated for banks, other financial institutions and the retirement fund. NRB had offered them bonds worth Rs. 1.5 billion. Likewise, applications worth Rs. 4.15 billion were received for bonds set aside for the public and institutions.

Although the coupon interest of the bond is 9percent, the real interest has been maintained at8.09 percent as it is a premium purchase. Its repayment period has been fixed at five years. The central bank has also received applications worth Rs. 19.92 billion for its treasury bills (TB) worth Rs. 5.41 billion. Likewise, applications worth Rs. 6.73billion were received for its91-day TB worth Rs. 1.31billion, applications worth Rs. 4.74 billion were received for its 182-day TB worth Rs. 1.45 billion and applications worth Rs. 8.45billion were received for its364-day TB worth Rs. 2.73billion, according to NRB. Pandey said that the increased government expenditure in the final days of the fiscal year was also another reason behind the increased level of liquidity in recent days.

"Banks are also more focused on recovering loans than making new investments in the final days of the fiscal year," he said. The government has Rs.18.2 billion in the national treasury as of Monday with the treasury position being as high as Rs. 28 billion a month ago, according to NRB. The ever increasing flow of remittances has also strengthened the liquidity situation. As per the latest figures of NRB, remittances have surged by 60 percent.
Source:
The Kathmandu Post