Dev bonds issue oversubscribed eightfold

KATHMANDU, NOV 16 -

 

The Rs 3 billion worth of development bonds issued by the government on Thursday have been massively oversubscribed. The central bank, which acted on behalf of the government, was inundated by subscription applications totalling Rs 26.44 billion.

According to Nepal Rastra Bank (NRB), banks and financial institutions applied for bonds worth Rs 23.02 billion, Citizens Investment Trust (CIT) Rs 1 billion and Employees Provident Fund (EPF) Rs 900 million. Interestingly, one individual from the general public category applied to buy bonds worth Rs 100,000.

A senior NRB official said that excess liquidity in the banking system was the main reason behind the enormous oversubscription. Due to low demand for loans, the banking system is currently awash in cash. NRB plans to award the bonds on Nov 21.

The government has issued 70 percent of the bonds under competitive bidding for the interest rate, and bonds worth Rs 24.02 

billion have been subscribed under this category. 

Under the non-competitive category, there were applications for Rs 2.42 billion worth of bonds, said NRB. 

This is the first time that the government has implemented competitive bidding in a bond issue in a major departure from the previous practice of the government fixing the rate.

While banks and financial institutions and the CIT subscribed to the bonds under competitive bidding, the EPF and the general public did so under non-competitive bidding. 

When asked about the lack of interest among the general public to buy bonds, the NRB official said it was due to the tedious paperwork involved and the low interest rate.

“Traditionally, development bonds are for contractual savings institutions such as the EPF and CIT, and we have opened the door to banking institutions and the general public too,” he said. “Citizen savings bonds will be issued for the general public which will provide a higher interest rate.”

The interest rate was fixed at 3.25 percent after competitive bidding. The system of fixing the interest rate was arranged in such a way that bidders quoting the lowest interest rate would come first, and others would come up in an ascending order. 

In this process, the interest rate is cut off when demand matches the bond issue, and this figure is considered as the interest rate for all the winning bidders. 

The same interest rate is applicable for bond applicants under competitive bidding and those under the non-competition category. 

“This is the lowest ever interest rate maintained for development bonds,” said a senior NRB official. According to the official, the highest interest rate quoted by bidders was 9.5 percent and the lowest was 1 percent.

Despite being the interest rate which has been maintained for five long years, the rate is lower than the average interest rate for savings deposits and fixed deposits in the market, according to the central bank.

The interest rate on one-year fixed deposits was maintained at 8.01 percent in August and 3.86 percent on savings deposits in August.