Decline in inventory marketplace because of loss of liquidity

The share market has also been affected along with the increasing lack of liquidity in banks and financial institutions. After the festive season, the open market has dropped by about 100 points in just two days.
The Nepali Stock Market Index (NEPSE) declined by 19 points on Monday and by 79 points on Tuesday. Along with the Nepse index, group indicators have also declined on Tuesday. Banking dropped by 35.94 points, trade by 64.66 points, hotels and tourism by 117.62 points, development banks by 297.15 points, hydropower by 101.84 points and finance by 144.67 points. Similarly, non-life insurance declined by 464.49 points, manufacturing by 186.6 points, others by 80.75 points, microfinance by 157.31 points, life insurance by 379.83 points, mutual funds by 0.34 points and investment group by 2.54 points.
Despite the decline in Nepse on Tuesday, the transaction amount has increased. The turnover on Monday was Rs 4.42 billion while on Tuesday it was Rs 6.52 billion.
Banks and financial institutions are facing a lack of investment (liquidity) as deposit growth is slower than credit expansion. Some banks have reached the stage of not being able to give additional loan after the loan-to-deposit (CD) ratio has exceeded 90 percent.
The monetary policy of the Nepal Rastra Bank (NRB) for the current Fiscal Year has changed the capital, credit and deposit (CCD) ratio in the banks and maintained the loan to deposit (CD) ratio. Lack of liquidity in the banks is further exacerbated by the decline in remittances and higher imports as the new fiscal year approaches.
Banks are currently managing liquidity through monetary instruments such as overnight repo, bid repo and standing liquidity facility (SLF). With the lack of liquidity, bankers and businessmen have been demanding concessions in CD ratio for some time.
Speaking at the general meeting of Nepal Bankers Association on Tuesday, Governor of Nepal Rastra Bank Maha Prasad Adhikari also said that there was a problem in the banking system when some banks became aggressive. He said that the liquidity was under pressure due to the credit extended to the private sector at the beginning of the current fiscal year. However, he also urged not to panic as there was a slight lack of liquidity.


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