Nepal Rastra Bank to Issue Rs 25 Billion Bond to Manage Market Liquidity

In a significant move to regulate the country’s financial landscape, Nepal Rastra Bank (NRB), the central bank of Nepal, has announced the issuance of a one-year bond worth Rs 25 billion. The security, officially titled “Nepal Rastra Bank Bond 2083 ‘Chha’,” is designed as a strategic tool for open market operations and liquidity management within the banking system.

The bond is scheduled for issuance today through an online bidding process. According to the notice released by the central bank, this financial instrument is not open to the general public. Instead, participation is strictly limited to Class ‘A’ (Commercial Banks), Class ‘B’ (Development Banks), and Class ‘C’ (Finance Companies) licensed by the NRB.

The primary features of the bond include:

• Total Amount: Rs 25 billion.
• Maturity Period: One year (Principal repayment scheduled for Poush 28, 2083 B.S.).
• Interest Rate: To be determined through a competitive bidding process (multiple price auction).
• Interest Payment: Payable semi-annually.

Subscription Terms for Financial Institutions

Eligible financial institutions (counterparties) wishing to subscribe must adhere to specific bidding requirements. The minimum bid amount is set at Rs 50 million, and any amount above that must be in multiples of Rs 50 million, up to the total issued amount. The NRB has also maintained a strict discipline policy regarding the auction. If a counterparty wins a bid but fails to have sufficient funds in their account on the issuance date, the NRB will impose severe penalties:

1. Cancellation: The approved bid amount will be immediately voided.
2. Fine: A penalty fee of 2.50% of the bid amount will be charged.
3. Suspension: The institution will be barred from participating in any open market operations or interest rate corridor auctions for a period of six months.

Strategic Context and Market Impact

This marks the fourth one-year bond issued by the central bank in recent times, signaling a persistent effort to absorb excess liquidity from the banking sector. By mopping up Rs 25 billion, the NRB aims to stabilize interest rates and manage the money supply, ensuring that the financial market remains balanced. For the participating banks, these bonds represent a safe, government-backed avenue to park their surplus funds while earning a competitive interest rate. This issuance comes at a time when Nepal’s banking sector is navigating fluctuating liquidity levels and rising non-performing loans (NPLs).