NRB Steps To Avoid Liquidity Trap

The banking sector is considered one of the significant pillars of the economy. The banking sector provides necessary funding for various other sectors of the economy such as industries, construction, real estate and the hospitality industry. However, deposits in commercial banks have been piling up for quite a long time. As a result, there are excess loanable funds in the banking sector. Major sectors like industries, big businesses, real estate, construction, hotels and tourism have not approached banks for loans as in the past. This has resulted in sluggish demand for credit. As of mid-November 2024, the average credit-to-deposit (CD) ratio of banks stood at 63 per cent. As per the directives of the Nepal Rastra Bank (NRB), banks are allowed to maintain the CD ratio at 90 per cent. However, owing to low demand for credit, the CD ratio is lower than this figure.