Newly appointed Governor of the Nepal Rastra Bank (NRB), Dr. Biswonath Poudel, has adopted a more flexible approach towards the stock market, marking a shift in tone within just a week of assuming office.

In the third quarterly review of the monetary policy for the current fiscal year 2024/25, unveiled on Sunday, May 25, Governor Poudel emphasized a “cautiously balanced” strategy. One of the most notable measures is the reduction in the risk weight assigned to share-backed loans—from 125% to 100%. This revision signals a more accommodative monetary stance aimed at revitalizing domestic demand as early signs of economic recovery emerge.

Previously, the loans against shares exceeding Rs 5 million carried a risk weight of 125%.

Despite ample liquidity in the banking sector, lending remained sluggish due to pressure on capital adequacy. The revised risk weight is expected to relieve this pressure, encouraging greater margin lending and unlocking more credit flow.

This move contrasts with earlier policy under Governor Maha Prasad Adhikari, who, four years ago, had not only imposed stricter caps on such loans but also raised their risk weight to as high as 150%.

The NRB’s latest policy review points to improving demand and better utilization of economic capacity. It emphasizes that managing domestic demand is crucial for maintaining macroeconomic stability and avoiding erratic interest rate fluctuations. The bank aims to ensure balanced liquidity in the financial system to support this goal.

The review also notes that declining interest rates have led to a gradual rebound in credit growth, which in turn is helping banks and financial institutions reduce non-performing loans (NPLs). However, key benchmark rates—the bank rate, the policy rate, and the deposit collection rate, which define the NRB’s interest rate corridor—have been left unchanged.

In a broader push to improve the investment environment, the review incorporates recent amendments to the Foreign Exchange (Regulation) Act, 2019, and the Foreign Investment and Technology Transfer Act, 2075. It also includes plans to draft new guidelines for managing foreign investment and debt, and to update procedures related to bounced checks under the Banking Offense and Punishment Act, 2064.

Taken together, these changes reflect a strategic recalibration under Governor Poudel’s leadership—seeking to balance financial stability with growth-oriented reform.