Liquidity, Reserves and Funding Requirements
Nepali banks are sitting on NPR 1.56 trillion they cannot lend, so none of the reserve and liquidity ratios currently binds.
The four liquidity ratios
Liquidity regulation in Nepal is simple in structure. Directive 13 of the Unified Directives imposes two reserve requirements, a separate rule caps lending against the deposit base, and NRB monitors a liquid-asset ratio alongside them.
| Requirement | Class A | Class B | Class C |
|---|---|---|---|
| Cash reserve ratio, held with NRB | 4% | 4% | 4% |
| Statutory liquidity ratio | 12% | 10% | 10% |
| Credit-to-deposit ceiling | 90% | 90% | 90% |
| Net liquid assets to total deposits | 20% minimum | 20% minimum | 20% minimum |
The cash reserve ratio is a balance held at the central bank against local-currency deposits. The statutory liquidity ratio is a broader requirement satisfiable with government securities and other eligible assets, so it functions partly as a captive market for government paper. Both were set for FY 2022/23, and the Monetary Policy for FY 2082/83 (2025/26) kept them unchanged.
The credit-to-deposit ratio is the one that drives behaviour. Capped at 90%, it replaced an earlier ratio that also counted core capital in the denominator. Whenever Nepali credit growth outruns deposit growth, the CD ratio is what stops lending, and it does so abruptly. A bank that hits 90% cannot approve new facilities regardless of how good the credit is.
Nepal has not been confirmed to apply the Basel III liquidity coverage ratio or net stable funding ratio as binding requirements. NRB’s own reporting measures liquidity through the liquid-assets ratios above rather than through a 30-day stress metric, and the Monetary Policy for 2025/26 refers to reassessing the credit-to-deposit mandate once international practice is implemented. That reads as an acknowledgement that the international metrics are not yet in place.
Where the system stands
None of these constraints is binding today, and the gap is extraordinary.
| Indicator | Mid-January 2026 | Mid-April 2026 | 10 July 2026 |
|---|---|---|---|
| Deposits | NPR 6,954 bn (class A) | NPR 7,918 bn | NPR 8,260 bn |
| Loans | NPR 5,151 bn (class A) | NPR 5,906 bn | NPR 5,940 bn |
| Credit-to-deposit ratio | 73.08% | 73.93% | 71.29% |
At 10 July 2026 the system held NPR 1.56 trillion of excess lendable funds, or NPR 1.47 trillion after allowing for the reserve requirement. Statutory liquidity maintained ran at 33.21% against a 12% requirement. Net liquid assets stood at 34.33% of deposits against a 20% minimum at mid-July 2025.
The flow figures explain the stock. In FY 2082/83 deposits rose by NPR 963 billion while loans rose by NPR 354 billion. NRB’s credit growth target of 12% was not met and the following year’s target was cut to 11%, which would still require roughly NPR 650 billion of new lending.
Sectoral credit growth over eleven months shows where the demand that exists is coming from: construction 15.1%, consumer lending 13%, transport and communications 12.5%, and agriculture down 2.4%. A system with more than a trillion rupees to deploy is putting the incremental rupee into housing, vehicles and personal credit.
Why liquidity swings
Nepal’s banking system alternates between severe liquidity shortage and glut on a cycle of a few years. Three structural features drive it.
Deposits are remittance-funded and lumpy. Household inflows from labour migration arrive as deposits without a corresponding domestic credit demand. Deposit growth is therefore driven by conditions in the Gulf, Malaysia and Korea rather than by domestic saving out of domestic income, and it does not move with the credit cycle.
Imports drain reserves and rupees together. Because consumption is import-heavy, a credit-financed consumption boom converts deposits into import payments, which pulls liquidity out of the system and pressures the external position at the same time. The 2021 and 2022 crunch followed exactly that path, and the policy response of import restrictions and margin requirements on letters of credit hit liquidity and trade at once.
Government cash management is bunched. Capital expenditure in Nepal concentrates heavily in the final months of the fiscal year to mid-July. Government balances held at NRB are outside the banking system, so when they are released, system liquidity jumps. A bank’s liquidity position in Ashadh is a poor guide to its position in Kartik.
Against that, NRB’s tools are the interest rate corridor and open market operations. For FY 2082/83 the corridor runs from a 2.75% deposit collection rate at the floor to a 6.0% bank rate at the ceiling, with the policy rate at 4.5%. Through 2026 NRB has been absorbing rather than injecting, withdrawing funds at least twice a week and issuing NPR 200 billion one-year instruments.
What is unsettled
Three parts of this framework are openly in transition.
The international liquidity metrics. NRB’s Monetary Policy for 2025/26 ties any reassessment of the credit-to-deposit mandate to the effective implementation of international practice. That is a signal that the liquidity coverage ratio and net stable funding ratio are on the agenda, and that the crude 90% cap is understood as a placeholder for them. A bank preparing for a Basel III liquidity regime would need maturity-bucketed data it does not currently report, so the transition will be visible in reporting requirements before it is visible in ratios.
The forbearance overhang. Most of the relief measures introduced after the disruption of September 2025 have been phased out, with additions for borrowers affected by highway widening. Working capital loan guidelines were loosened during 2026, and the IMF has pressed for strict rules on utilisation. Liquidity ratios computed while forbearance is in force are not comparable to ratios computed after it lapses.
The deposit perimeter. Savings and credit cooperatives take deposits entirely outside the BAFIA framework, hold no reserve at NRB and are not covered by the Deposit and Credit Guarantee Fund. The National Cooperatives Regulatory Authority is only now building a licensing regime, and the IMF expects on the order of ten thousand cooperatives to seek licences over the medium term. Until that is done, system-wide liquidity statistics describe the regulated part of Nepali deposit-taking rather than all of it.
What borrowers face
A glut is not the same as easy credit, and Nepali borrowers in 2026 report the two diverging.
Excess liquidity compresses deposit rates and, through the base rate mechanism described in How Lending Is Priced and Directed: Base Rate, Spread, Priority and Restricted Sectors, lending rates with them. Money is cheap. It is also being underwritten more conservatively than at any point in the last decade, because the loan portfolio review has put asset quality under supervisory scrutiny and because non-performing loans reached 5.60% by mid-April 2026. Banks with capital restoration plans due at NRB in mid-August 2026 have limited appetite for new risk-weighted assets.
The constraint on a corporate borrower has therefore moved from availability to credit standards and collateral. Working capital guidelines were loosened during 2026 and most of the forbearance introduced after the September 2025 disruption has been phased out.
For a treasury function, three points follow. Deposit pricing has very little floor at present, and negotiating on rate is unlikely to be productive. The 90% credit-to-deposit ceiling remains the thing to watch if credit demand recovers, because it turns from irrelevant to binding quickly. And a bank’s published liquidity ratio at a fiscal year end should be discounted, for the same seasonality reason that makes fourth-quarter asset quality flattering.
Sources
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Nepal Rastra Bank · March 2024 · Tier 2 — Official publication
Supports: The cash reserve ratio set at 4% for all banks and financial institutions, and the statutory liquidity ratio continued at 12% for commercial banks and 10% for development banks and finance companies.
Accessed 26 August 2026
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Nepal Rastra Bank · 11 July 2025 · Tier 1 — Primary legal instrument
Supports: The policy rate reduced to 4.5%, the bank rate to 6.0% and the deposit collection rate to 2.75%; that CRR and SLR provisions were kept unchanged; and the statement that a credit-to-deposit mandate would be reassessed once international practice is implemented.
Accessed 26 August 2026
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Banks sit on Rs1.56 trillion in excess liquidity as weak credit demand persists
The Kathmandu Post · 16 July 2026 · Tier 6 — Professional or news source
Supports: Excess lendable funds of NPR 1.56 trillion at 10 July 2026, deposits of NPR 8.26 trillion, loans of NPR 5.94 trillion, a credit-to-deposit ratio of 71.29%, the 90% lending ceiling, deposit growth of NPR 963 billion against loan growth of NPR 354 billion, the 12% credit growth target and the 11% target for the following year, sectoral credit growth, and NRB's absorption operations including NPR 200 billion one-year instruments.
Accessed 26 August 2026
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Financial Stability Report, Issue No. 17
Nepal Rastra Bank · Published July 2026; data to mid-July 2025 · Tier 2 — Official publication
Supports: Total liquid assets to deposits of 24.92% and net liquid assets to total deposits of 34.33% against a 20% minimum requirement, credit growth of 6.14% and deposit growth of 12.58% for FY 2024/25.
Accessed 26 August 2026
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Key Financial Indicators, Poush end 2082 (mid-January 2026)
Nepal Rastra Bank · Published 23 March 2026 · Tier 2 — Official publication
Supports: Commercial bank deposits of NPR 6,953,689 million and loans of NPR 5,150,812 million, a credit-to-deposit ratio of 73.08%, statutory liquidity maintained at 33.21% and net liquidity to deposits of 35.75% at mid-January 2026.
Accessed 26 August 2026
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2082 Chait (Mid-April 2026) Banking and Financial Statistics (Monthly)
Nepal Rastra Bank · Data to mid-April 2026 · Tier 2 — Official publication
Supports: System deposits of NPR 7,918.3 billion, credit of NPR 5,906.4 billion and a credit-to-deposit ratio of 73.93% at mid-April 2026.
Accessed 26 August 2026
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International Monetary Fund · 8 June 2026 · Tier 3 — Multilateral institution
Supports: The loosening of working capital loan guidelines, the phasing out of most protest-related forbearance measures, and the assessment that credit growth remains weak.
Accessed 26 August 2026
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