RMA comes up with liquidity policy to ensure better liquidity from available resources

The Finance Minister Lyonpo Namgay Tshering said that, the Royal Monetary Authority (RMA) as the central bank and the Financial Institutions are working on monetary measures to ensure more liquidity.

Lyonpo said that at the moment there is enough liquidity with around Nu 20 bn lying with the FIs.

The MoEA Minister Lyonpo Loknath Sharma said that easing liquidity and access to credit is an important part of ensuring economic activities and growth.

The MoEA minister said that the RMA may be making changes to its regulations or allowing certain relaxations to allow banks to have more liquidity.

A banker on the condition of anonymity said that the RMA has come up with a ‘Liquidity Policy’ that will allow RMA to absorb the excess liquidity of some Financial Institutions (FIs) and then give it to other FIs to lend.

He said that while some FIs have excess liquidity there are others who need it to lend.

An earlier report by the paper showed that certain banks like BoB, Druk PNB and Tashi Bank had enough deposits to lend but they did not have adequate equity or Capital Adequacy Ratio (CAR) to be able to lend out the deposits.

CAR is to see if the bank has enough capital against its credit exposure risks to be able to take certain losses.

So these FIs would need an equity injection to be able to lend more. The particular focus is on the BoB which with some equity injection can lend out a lot more.

On the other hand, banks like BNB and RICBL had enough equity or CAR but needed some deposits or liquidity injection.

The banker said that liquidity is not really an issue at a time when people were not even coming forward for loans due to the state of the economy.

He said that certain Financial Institutions at this point of time may not even accept high paying fixed deposits of 9 and 10 percent as that money cannot be lent out.

The banker gave the example of the Nu 3 bn in T-Bill that were subscribed followed by another Nu 3 bn in three-year government bonds at an interest of 6.5 percent which in fact was over subscribed.

He said that the above two subscriptions showed that there is not only liquidity in the FIs but also among the people as 44 individuals has also bought the bonds.

The banker said that right now with no loans or no loan interest to pay, no consumption and expenses like travel and others, people would have money lying around and so there is liquidity.

He said that the RMA apart from the liquidity absorption and disbursal may further reduce the Cash Reserve Ratio (CRR) from 7 percent to 5 to 6 percent to allow for more liquidity.

The CRR which was 10 percent had been earlier reduced to 7 percent to allow low interest lending to whole sellers to stock up.

The CRR of a bank is the 10 percent of its total deposits that it has to deposit with RMA and so normally banks cannot lend out or earn money on it.

There have some ideas that the RMA may also reduce the Statutory Liquidity Ratio of 20 percent for banks and 10 percent for non-bank FIs, however, here the banker said it is not very helpful as SLR unlike CRR is not pure cash deposits and it includes non cash deposits like assets which are not liquid.

SLR is around 20 percent of the deposit or liability of the banks minus the capital value of the banks kept with RMA and, here again, they normally cannot earn interest unless they can buy T-Bills.

The banker said that the RMA is also unlikely to reduce the CAR or Capital Adequacy Ratio below the current 10 percent to allow more lending as here it is up to shareholders to pump in CAR and it is important for the stability of the bank.

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