By A Staff Reporter
Kathmandu, Oct. 8: The Confederation of Nepalese Industries (CNI) has drawn attention of the government and Nepal Rastra Bank to the increasing liquidity pressure on banks and financial institutions and the rise in interest rates.
Issuing a press statement Thursday, the CNI said that the problem would be resolved immediately if the government and the NRB remained vigilant against the pressure on liquidity and interest rates.
The banks and financial institutions and industrialists have concluded in their discussions that liquidity crunch in the market was increasing although the problem was not a long-term one.
The CNI has urged all the concerned parties to be aware of the problem, which may be severe if no immediate steps are taken to solve it.

The banks and financial institutions have said that the main reasons for the current liquidity crunch are to remove the credit resource mobilisation ratio (CCD ratio) and maintain the loan-to-deposit CD ratio at 90 per cent.
The practice of issuing new currency notes during the festive season has also contributed to the problem of liquidity.
In order to solve this problem, the CNI has requested the NRB to issue directives to maintain the loan-to-deposit ratio at 95 per cent by mid-January and reduce it to 90 per cent by mid-July, 2022.
Similarly, the confederation expressed its view that if only 50 per cent of the government deposits were calculated in the loan-to-deposit ratio, a large amount would be eligible for investment and the existing liquidity problem would be addressed.

The CNI has urged the NRB to make new arrangements accordingly as removing the existing provision of calculating foreign currency deposits and loans in the loan-to-deposit ratio will bring more liquidity in the market.
It has requested the institutional depositors and banks and financial institutions to be restrained for the next two months as liquidity pressure is projected.
Institutional depositors are also urged not to move fast in the name of getting higher interest at this time.
The CNI said that the BFIs should also be held responsible for the risk of rising interest rates when accepting short-term deposits.
The CNI has drawn the attention of NRB to the fact that the import of raw materials of Nepali industries has also been affected after the term loan and site LC was reduced to 90 days due to the pressure on the foreign exchange reserves.

It takes at least 90 days to import industrial raw materials from the countries like Brazil and Canada.
The CNI has demanded that the term loan period for industrial raw materials should be of 180 days with adoption of a separate policy or arrangement for the industries in case the goods take more time to be processed.