August 14: Nepal Rastra Bank (NRB) has introduced the Monetary Policy for the current fiscal year (2021/22).
The monetary policy unveiled by the NRB Governor Maha Prasad Adhikari on Friday aims at reining credit growth of the banking sector toward private sector, encourage bank and financial institutions (BFIs) for merger and acquisition and continue support or relief to businesses or borrowers hit by the Covid-19, among others.
The monetary policy for the current fiscal year was delayed by a few weeks as the newly appointed Minister for Finance Janardan Sharma reportedly asked the central bank to wait for some time.
While keeping major policy rates like cash reserve ratio (CRR), statutory liquidity ratio (SLR) and bank rate unchanged, the central bank in its monetary policy projected the private sector credit to grow by 19 percent compared to 20 percent in the last fiscal year (2019/20). Average annual inflation will be tamed at 6.5 percent in the current fiscal year, according to the monetary policy.
In line with the demand of banks and financial institutions, the central bank announced that it will now ditch credit to core capital cum deposit ratio requirement of 85 percent to adopt credit to deposit ratio requirement. According to the new announcement, BFIs will be required to maintain 90 percent of CD ratio by mid July next year.
Not only commercial banks, development banks, finance companies and wholesale lending microfinance companies will also be required to float debentures worth 25 percent of their paid-up capital.
In order to encourage Nepali workers to adopt formal channels to send their money and save their earnings, the central bank said that one percentage point higher interest will be provided on their deposits if sent through banking channels.
Consortium financing limit for bank and financial institutions has been increased to Rs 2 billion for Rs 1 billion.
The central bank also announced various relief measures including the continuity of some of the provisions introduced in the monetary policy for the last fiscal year.
Similarly, NRB announced some policy relaxations for banks and financial institutions to go for merger and acquisition. According to the monetary policy, the central bank will provide one year extension for BFIs to meet targeted sector lending, waiver of Cash Reserve Ratio requirement by 0.5 percentage point and one percentage point waiver on SLR requirement for one year, cooling period for board directors and CEOs, 5 percentage point higher limit on individual customer deposit and one percentage point higher interest spread rate, among other facilities, for those who complete their merger and acquisition and start joint operation in the current fiscal year.
Here are the 10 major highlights of the monetary policy:
1-      Inflation target at 6.5 percent; Private sector credit projected to expand by 19 percent
2-      CCD ratio requirement of 85 percent scrapped to adopt 90 percent CD ratio requirement
3-      Continuity of supports for borrowers hit by pandemic including refinance facility, business continuity loan, rescheduling and restructuring of loans
4-      Limit on loans against share pledges—Rs 40 million from one bank or financial institution and Rs 120 million in total
5-       Rs 1.5 million business loans under deprived sector for those people who lost jobs in tourism sector due to Covid-19
6-      BFIs would not be allowed to charge more than 2 percent premium on base rate for business loans below Rs 10 million
7-      Feasibility study will be carried out on central bank digital currency
8-      Digital lending framework will be formulated to facilitate BFIs for online lending services
9-      Deferral of implementation of Counter Cyclical Buffer measures until mid July next year
10-      Review of Base Rate formula