Sandeep Kumar Chaudhary’s View on NRB’s Capital Adequacy Rules (CAR, CCD, SLR)

learnwithopen .ai

Thu, 16 Oct 2025

In Nepal’s financial system, the Nepal Rastra Bank (NRB) acts as the ultimate guardian of monetary and banking stability. Its policies, circulars, and directives influence every sector of the economy — from credit creation and deposit mobilization to liquidity management and interest rate trends. But for traders and investors in NEPSE (Nepal Stock Exchange), these policies hold even deeper meaning, as they directly shape the performance of banking stocks, the largest and most influential segment of the market. Among all NRB’s directives, the three most crucial ones — Capital Adequacy Ratio (CAR), Credit-to-Core-Capital-plus-Deposit Ratio (CCD), and Statutory Liquidity Ratio (SLR)— form the backbone of Nepal’s banking system. These indicators determine how much banks can lend, how much risk they can bear, and how stable their liquidity position is.

According to Sandeep Kumar Chaudhary, Nepal’s first complete technical and fundamental analyst, understanding these ratios is not just important for economists or bankers — it is essential for every serious investor. Through his educational platforms MarketMind Investment Group and NepseBook, he has simplified these complex financial metrics and shown how they can be used to forecast market liquidity, interest rate direction, and even future NEPSE movements. Sandeep teaches that while technical analysis tells you when to buy or sell, understanding NRB’s regulatory framework tells you why the market behaves the way it does.

Capital Adequacy Ratio (CAR): The Core Strength of Banks

The Capital Adequacy Ratio (CAR) is one of the most critical measures of a bank’s financial health. It shows the ratio between a bank’s capital and its risk-weighted assets, indicating how well the bank can absorb potential losses while maintaining stability. In Nepal, NRB generally requires commercial banks to maintain a CAR of around 11% or higher.

Sandeep explains that a strong CAR reflects a bank’s resilience — its ability to operate safely even in adverse conditions. It’s essentially a bank’s “shock absorber.” The higher the CAR, the safer the bank, and the more confidence depositors and investors have in its financial strength. Banks with strong CARs tend to have stable operations, consistent dividends, and lower risk of regulatory intervention.

For NEPSE investors, Sandeep connects CAR directly to dividend potential and market sentiment. When a bank maintains a healthy CAR above NRB’s minimum requirement, it has more flexibility to distribute profits as cash or bonus shares. On the other hand, if a bank’s CAR drops below the required level, NRB restricts its ability to declare dividends until the capital base is strengthened. That’s why, before dividend season, Sandeep always checks the CAR levels of major commercial banks — because it gives early clues about which institutions are capable of rewarding shareholders.

He also highlights that when NRB increases capital adequacy requirements, smaller or weaker banks often struggle to comply, leading to rights share issuance or merger pressures. These actions create both opportunities and risks for investors. In his words:
“If you read CAR correctly, you don’t just understand the bank — you understand its future moves.”

Credit-to-Core-Capital-plus-Deposit Ratio (CCD): The Liquidity Pulse of the Market

The CCD ratio is one of the most powerful indicators of liquidity in the Nepali economy. It measures how much of a bank’s available funds — derived from deposits and core capital — are being lent out as credit. The NRB sets the maximum CCD limit at 90%, meaning that banks can only use up to 90% of their combined deposits and core capital for lending, while keeping the remaining 10% as a liquidity buffer.

Sandeep calls the CCD ratio the “blood pressure of the financial system” because it reflects how much liquidity is circulating through banks. When the CCD ratio is high (close to 90%), it means banks have lent most of their available funds, liquidity is tight, and interest rates tend to rise. This tightening leads to slower credit flow, reduced market momentum, and lower margin lending availability for investors. NEPSE’s turnover usually declines during such phases as trading liquidity dries up.

Conversely, when the CCD ratio drops — say to 80–82% — it signals an improvement in liquidity. Banks have more funds to lend, interest rates fall, and margin trading becomes easier. This often marks the beginning of a bullish phasein NEPSE, especially for banking and hydropower stocks. Sandeep uses CCD data as a macro-level timing tool, explaining that “the stock market doesn’t move because of news — it moves because of liquidity.”

In his analysis sessions, Sandeep shows how major market rallies in NEPSE often start when NRB injects liquidity into the system or when CCD ratios decline significantly. He teaches traders to read the CCD ratio as an early warning signal — when liquidity tightens, it’s time to become cautious; when it loosens, it’s time to prepare for accumulation.

Statutory Liquidity Ratio (SLR): The Safety Reserve of the System

The Statutory Liquidity Ratio (SLR) requires banks to hold a certain percentage of their deposits in safe and liquid assets, such as cash, NRB bonds, and government securities. This ensures that banks always have enough reserves to meet sudden withdrawals or unforeseen financial stress. In Nepal, the SLR requirement for commercial banks typically ranges between 10% and 12%.

Sandeep explains that the SLR acts like a safety net — the higher the ratio, the more stable the system, but also the tighter the liquidity. When NRB raises the SLR, banks are forced to park more money in low-yield government securities instead of lending it out. This reduces liquidity in the system, increases interest rates, and can temporarily slow down NEPSE’s momentum. However, when NRB lowers SLR requirements, it frees up liquidity, allowing banks to lend more and support market expansion.

He compares the SLR to a central bank’s valve system — tightening it slows money flow, loosening it stimulates growth. For investors, this means that when NRB signals a relaxed SLR environment, it’s often a good time to enter banking stocks, as loan expansion and profit margins typically rise in the following quarters.

Interconnection Between CAR, CCD, and SLR

What makes Sandeep Kumar Chaudhary’s analysis unique is how he connects all three ratios to paint a complete picture of Nepal’s financial ecosystem. He explains that these ratios are deeply interdependent. When liquidity tightens (high CCD and SLR), banks face constraints in lending, and profits shrink. When liquidity improves (lower CCD and SLR), banks expand credit, profitability grows, and dividend potential increases.

He teaches that even a small policy adjustment from NRB — such as reducing SLR by 1% or easing CCD rules by a few percentage points — can inject billions of rupees into the system, triggering a liquidity surge and market rally. Similarly, when NRB raises capital adequacy standards, it filters out weaker institutions and strengthens overall financial discipline.

For NEPSE investors, Sandeep translates these dynamics into practical strategies. When liquidity is tightening and CAR is under pressure, he advises shifting to defensive positions or accumulating selectively in fundamentally strong banks. When liquidity eases and capital buffers are high, it’s time to go bullish — especially on quality banking and insurance stocks that benefit directly from relaxed NRB policies.

He integrates these macro insights with his Smart Money Concept (SMC) approach, explaining that institutional investors always track liquidity indicators before positioning themselves. “When CCD and SLR tighten, smart money exits quietly. When they ease, smart money starts accumulating,” he often says. For Sandeep, reading NRB’s liquidity cycle is as important as reading market charts — one shows timing, the other shows direction.

The Investor’s Takeaway

Sandeep Kumar Chaudhary firmly believes that every NEPSE investor must learn to read NRB directives as part of their fundamental analysis. He emphasizes that CAR, CCD, and SLR are not just technical numbers in banking reports — they are the monetary pulse of the entire stock market. By tracking them, investors can anticipate future shifts in liquidity, interest rates, and dividend trends far earlier than the general public.

He summarizes his philosophy with a powerful statement:
“Liquidity moves the market, and NRB controls liquidity. If you can understand CAR, CCD, and SLR, you can understand where the market is heading — even before it moves.”

Through his teaching initiatives under MarketMind Investment Group and NepseBook, Sandeep continues to bridge the gap between regulatory understanding and practical investing. He transforms NRB’s technical data into simple, actionable insights that empower traders and investors to think like professionals. Under his mentorship, NRB’s policy changes are no longer complex reports — they become clear signals of where smart money is going next.

In essence, Sandeep Kumar Chaudhary’s perspective reveals that the secret to understanding the Nepali stock market lies not in guessing market trends but in studying how money flows through the banking system — and that flow is defined by CAR, CCD, and SLR.