Liquidity crisis its causes in nepal
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Liquidity Crisis & its causes in Nepal. We would like to thank for their suggestions and help. Mr. Achyut Pant Mrs. Anita Pradhan Nepal Mr. Punaram Ghimere. Methodology. Internet NRB report. Various Books Newspapers. Definition:.

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Liquidity crisis its causes in nepal

Liquidity Crisis & its causes in Nepal


We would like to thank for their suggestions and help
We would like to thank for their suggestions and help

  • Mr. Achyut Pant

  • Mrs. Anita Pradhan Nepal

  • Mr. Punaram Ghimere


Methodology
Methodology

  • Internet

  • NRB report.

  • Various Books

  • Newspapers.


Definition
Definition:

A state in which there is a short supply of cash to lend to business and consumers and interest rate is high. There is less availability of credit


Background
Background :

  • Per –capita income of an average Nepali is about $300.

  • Less income , so less saving which automatically leads to less investment


Backbones of nepalese economy
Backbones of Nepalese Economy

  • Agriculture

  • Remittance

  • Foreign Aid

  • Tourism


Factors indicating crisis
Factors Indicating Crisis :-

  • Reserve Money decreased by 2.9% in comparison to last year.

  • The Inter Bank Transaction Interest Rate has increased up to 12% to 14%

  • Liquidity Assets declined by 11.1%( 167.12 billion)


Probable causes
Probable Causes:-

  • Low increasing rate of REMITTANCE

    Remittance has just increased by 10.4 %

    Last year it was 65.8%



  • Increased Living Standard:-

    People’s living standard has increased. So they consume more and more of luxurious goods, which are generally to be imported. Like Cars, Mobiles etc.

    This results in outflow of cash.


  • Investment greater then the deposit.

    Deposit about 40 billion while investment is 75 billion

    Credit increased by 13.4% ( about 54.38 billion)

    last year it was 10.2%(31.4 billion)


  • Investment in Unproductive sector

    Large percentage of investment is done in the unproductive sectors like Real Estate, Gold, Luxury Goods like Cars, Mobiles etc.

    Credits in Productive Sector increased by just 8.2%

    Latest report says that Investment in Gold increased from 11 Arab to 33 Arab


  • Investment done in Foreign Land

    People feel safe when they do investment in foreign countries, especially in India.

    Outflow of cash to India is high due to investment in programs like mutual funds.



  • Increased Holding Money

    People feel safe to have money in hand rather than bank thinking won’t get money when needed.

    About 2 crore cash is frozen in ATMs machine.


  • False Advertisement or News

    The more and more attention of media regarding crisis and their analysis has made people more suspicious . So they are withdrawing money from the bank.


  • Government’s Fault.

    Budget Delayed by 5 months.

    Money is frozen with government as no big expenditure of government in comparison to its large collection



Effects
Effects:-

  • Less availability of loans in market.

  • High inter banking transaction interest rate

  • High Interest Rate


Steps to remedy it
Steps to remedy it.

  • NRB injected about Nrs. 20 billion through Repo.

  • NRB strictly prohibited to invest more then 40% in real state and housing loan.

  • NRB has seek help from World Monetary Fund incase of emergency.

  • Government decided to invest in development projects


Conclusion
Conclusion:-

Though factors like decreasing remittance rate, increasing investment in unproductive area will increase economic crisis. But also experts say still Nepali is not really in crisis. But, if ongoing condition continues, there will really be economic crisis. So more effective steps are expected.


Data and figures presented in this report are taken from the of Nepal Rastra Bank, various reports and newspaper.


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