Liquidity is about how much of the deposits that we have can be convert to a cash at very little time and

very
little loss of value that is what liquidity is about. IT is the cash required to met the short term obligations. Because
every day a lot of people come to the banks to deposits money and take out the money. Bit the provision under
which the banks work is that at no point of time will all the people who put in money at bank come and ask for all
the money back. If that happens no financial institutions not only in Nepal but in the world will be able to sustain
it. But however having said that we have a estimation as to how much will be required to met at daily needs,
weekly needs, monthly needs so that we stressed at to ensure that we have the required liquidity. Cash, bank
balance, investment sum for liquidity, treasury bill, cash that we have in our vaults and the cash that we have
with the NRB is what liquidity is for the banking sector. To ensure that our liquidity is maintained the central bank
has some regulations. CCD ratio must be not more than 80%. And the LD ratio this has to be greater than 20% at
any given point of time so that at no point there is any panic with their depositors. But the current situations that
we faced recently was not the liquidity crisis or the liquidity crunch. We had more than enough liquidity. No
depositors said that I came to take money and my bank is not able to give money. Whether that be a commercial

banks, development banks and even financial companies. Everybody was able to met whatever their
requirements was interms of withdrawing money from their accounts. The problem was in the lending’s. Back in
the 2017/18 the situations was a bit of similar but inversely. At that point of time there was the crunch or crisis of
lendable funds. Banks were levelled the NRB provisions of maintaining not more than 80% CCD ratio. And the
reason was simple that the banks lends a lots of money before the first half of the fiscal year. But now the
situation is more and more complicated. We have excess of lendable funds but the banks are unable to mobilize
that funds to their requirements. And the reasons is more simple than before that is this global pandemic. All the
banks in Nepal are facing the problems of having excess amount of lendable funds. And if the situations prolongs
much further we believe that there will be an economic impact not only in banking and financial sectors but also
to the growth of all businesses.

Impacts on banking and financial sectors

Currently banks have enough liquidity. As per the NRB provision maintaining the 80% of CCD ratio. But the
problem here is that banks are not being able to mobilize that lendable funds and levelled near 80% CCD ratios.
They are significantly lower than that. Banks have funds but there is no customers comes and ask for the loan. No
industries are coming and asking for the loans. They are not even thinking of future expansions. Not only that
share market investors are also hesitating to take loans. The situations is really unpredictable now. The banks are
now being shocked due to this unpredictable positive liquidity crisis. And its impacts on them would be like there
profitability will be highly affecting. Because at this point of time there current ratios (CA) would be very high as
because they are being unable to utilize the available sources of funds. Their Days sales outstanding (DSO) are
goanna be high due to they are also unable to the timely recovery of repayments and interest on old loans. The
usual ratios used to measure the banks financial performances are ROA and ROE. However both can be used to
measure the financial performance of the banking and related sectors. However, ROE only measures the return
earned from the investment of the owners of the company while ROA is used to measure the effectiveness of the
company in generating profit to utilize its total assets. In this scenario both ROE and Return on assets (ROA) is
going to be lower. They are trying to providing loans on lower interest rates that means there is lower margin on
banks net interest income (NIM). Also there is rate of growth of the loans is very lower than the rates of growth
of the deposits which directly means Higher debt ratio. Because deposits which is considered as the banks
liabilities are currently high and loans which is banks investments are comparatively low. So that banks are liable
to pay interest to their depositors. Similarly, interest on loans (Investment)<interest on deposits (liabilities). So
there will lower profitability. Uncertainty on interest rates making customers as well as banks confused on
choosing short term vs long term products. So that unhealthy competitions. Along with that operating cost of
banks have also going up with the cost of everything in the inflation.

Impacts on the other related sectors

The impact would have been in the economic growth. The banks are not being able to mobilize the sanctioned
new loans and the timely recovery of repayments and instalments of the old loans. Which leads to a problems on
money supply on market. Low flow of money into the markets. Low injections of money on the productive
sectors. Even though credit is comparatively cheaper than that of last fiscal year but the share market investors
are hesitating to invest by taking loans due to the market uncertainty and the uncertainty of this pandemic that is
for how long will it be prolongs. Inflationary pressures are there. As we can see there's already inflation on goods
prices especially the vegetable goods. And the reason is that more moneys in the hands of consumers and
stoppage we have been found on the flow of money into the markets. Businesses are suffering due to this
pandemic and uncertainty that is going on. FDI that is foreign direct investment is still not coming in as we
expecting. Lack of investment friendly environment, labour problem and high product cost might be a cause of
FDI not still not coming as expected. Business houses are not thinking about future expansions because of the
current scenario.