NRB cancels bids for its bond offer

Kathmandu, January 18

Nepal Rastra Bank (NRB) today cancelled all the bids submitted by banks and financial institutions (BFIs) to purchase NRB bond as the BFIs quoted an interest rate that was lower than the interbank rate. NRB had issued NRB bond worth Rs 40 billion with a maturity period of 177 days due to the acute liquidity crisis in the financial system.

According to Trilochan Pangeni, executive director of Public Debt Department of NRB, six BFIs had applied for Rs 6.7 billion through 18 bid documents and they had quoted interest rate ranging from 0.7 per cent to three per cent, which was way below the average interbank rate that stood at 3.6 per cent this week.

NRB is preparing to issue bond worth only Rs 10 billion tomorrow due to the lukewarm response from the banks and financial institutions, as per Pangeni.

Nepal Rastra Bank had cancelled the bids on Tuesday too due to the same reason.

NRB has tried to address the liquidity crunch facing BFIs through long-term maturity period bonds to make it easier for BFIs to lend the funds that they borrow from the central bank.

Since the government has collected around Rs 35 billion by mid-January as the first instalment of the income tax, Nepal Rastra Bank has issued the bond with longer maturity period assuming that the liquidity situation will further tighten along with the withdrawal of liquid cash from BFIs for payment of income tax.

It is interesting to note that BFIs are not very keen to borrow from the central bank but have been continuously saying that they are under pressure of severe liquidity crunch caused by the low spending from the government. The government’s treasury is surplus with Rs 215 billion due to low expenditure compared to revenue collection.

It is reported that the banks and financial institutions are less interested to quote higher rate for the Nepal Rastra Bank bond as they believe that the liquidity crisis is a temporary phenomenon and will end as the government’s spending gathers pace.