Cash crunch up, interbank lending rate 14pc

The inter-bank lending rate scaled further up to record 14 percent on Sunday, as commercial banks continued to struggle to balance their cash flows after some of the major institutional depositors withheld deposit renewals. The inter-bank lending rate last week was 13 percent.

Bankers told myrepublica.com that major institutional depositors are bargaining with the aspirant banks for higher interest rates by withholding renewals. Apart from other long-running reasons for liquidity crunch, ´deliberate reluctance´ by big depositors is the latest factor that fueled liquidity crunch, said a banker. "They are using a strategy of securing higher interest rates by delaying renewal of their deposits currently kept in the banks, which are hard hit by the ongoing liquidity crunch," he added.

Employees Provident Fund, Nepal Army, Citizen Investment Trust and Nepal Telecom are the major institutional depositors that altogether hold deposits of around Rs 80 billion in the country. However, bankers are hopeful that the liquidity crunch will ease in the coming weeks after big depositors start putting their money in banks following the settlement of deposit rates.

A banker, who participated in Sunday´s inter-bank lending bidding, said there was tremendous demand for lending with only NABIL Bank and Himalayan Bank emerging as lenders. The two banks lent some Rs 900 million during Sunday´s interbank transactions, the bankers said, adding that the market is still in short of Rs 2 to 3 billion.

The central bank has so far injected Rs 12 billion though the means of repo -- lending by central bank against government bills. The central banks last week reissued repo after its expiry and the average rate offered by the bank was 11.45 percent which means the Standing Liquidity Facility (SLF) rate went up to 14.45 percent.

However, bankers said that the central bank is not likely to renew a repo worth Rs 2 billion that is expiring Monday. The net injection of cash by the central bank will come down to Rs 10 billion if it doesn´t renew the repo, said the banker.
Source:Republica