July 20- Nepal Rastra Bank (NRB), the central monetary authority, today instructed banks and financial institutions (BFIs) to meet the new regulatory requirement on the portion of deposits that they must park at the central bank.
The latest Monetary Policy, launched on Friday, has raised the cash reserve ratio (CRR) — the portion of total deposits that BFIs must park at the central bank.
"The new provision will come into effect from this week," says an NRB directive issued today.
As per the directive, commercial banks must park six per cent of total deposits at the central bank, up from five per cent in the last fiscal year. This provision alone is expected to lock up Rs 11 billion of commercial banks' money at the central bank, on which no returns are extended.
Similarly, development banks must maintain a cash reserve ratio of five per cent this fiscal, as against 4.5 per cent last fiscal. However, the amount of money that finance companies must park at the central bank has remained unchanged at four per cent.
Although the hike in cash reserve ratio is not expected to have much impact on commercial banks — which have to maintain a liquidity ratio of 20 per cent — it is likely to marginally reduce their income as the new provision will soak up funds that could have been invested in government securities.
However, the new provision on cash reserve ratio will affect development banks, which do not have to maintain 20 per cent liquidity ratio.