KATHMANDU: Due to a lack of alternative investment avenues, rising deposits have become a burden for Nepali banks, financial institutions (BFIs), and the Nepal Rastra Bank (NRB).

Banks must pay interest on deposits, but weak credit demand is increasing costs while reducing earnings, prompting some bankers to consider refusing new deposits.

The surplus liquidity is driven by an economic slowdown, a slump in the real estate and stock markets, and strict regulations.

NRB data show total deposits at Rs 8.017 trillion—more than 21% higher than the projected GDP of Rs 6.6 trillion—while total loans stand at only Rs 5.915 trillion.

As a result, the average credit-to-deposit (CD) ratio is 73.10%, well below the regulatory ceiling of 90%.

The government also faces constitutional and structural constraints, with internal borrowing capped at 5.5% of GDP, limiting its ability to use excess funds for infrastructure projects.

To manage the liquidity surplus, the NRB has been absorbing excess funds by paying interest to BFIs, with costs expected to triple from last year’s Rs 10 billion.

Experts and central bank officials warn that without large-scale development projects or alternative financing tools such as infrastructure bonds, private sector credit demand will remain weak and economic growth will continue to struggle.