Urgency To Solve Liquidity Puzzle

Nepal’s financial sector is currently flooded with excess liquidity, creating a liquidity conundrum. While central banks in major economies have in recent years battled tight credit conditions and elevated inflation, Nepal Rastra Bank (NRB) and Nepal's banking system are struggling with the opposite: elevated liquidity. This abundant liquidity coexists with a sluggish economic growth of below 4 per cent. Total deposits across Banks and Financial Institutions (BFIs) reached Rs 8.01 trillion against total outstanding credit of Rs 6.3 trillion as of mid-June 2026. This reflects a credit- deposit ratio of 79 per cent. With the excess liquidity hovering around Rs 1.3 trillion as of the end of FY 2025/26, the banking sector finds itself "drowning in liquidity ". The funds are available, but remain idle, raising serious questions about the efficacy of Nepal's financial intermediation and investment climate.