The Nepal Rastra Bank (NRB) has lowered the loan loss provisioning for performing loans to 1% from 1.1% as part of its mid-term review of the monetary policy for the current fiscal year.
Following the announcement of the monetary policy in July last year, the central bank through a directive had eased the provisioning requirement for performing loans in the beginning of the fiscal year, reducing it to 1.1% from 1.2%.
In a notable policy shift, microfinance financial institutions will be required to link their loan interest rates to their base rates starting mid-May this year. Currently, these institutions operate under a 15% interest rate cap.
Read: Monetary Policy ‘Cautiously Accommodative’ to make the Economy Vibrant: NRB
Further adjustments in lending policies include maintaining the loan-to-value (LTV) ratio at 60% for personal and all types of electric vehicles, while the Non-Deliverable Forward (NDF) limit for primary capital has been raised from 15% to 20%.
NRB has kept all other provisions in the policy unchanged. Despite rising inflation suggesting the need for an increased policy rate, the central bank has opted to continue a cautious yet flexible approach to support economic activities, said the review unveiled on Tuesday, February 25.
Read: NRB Keeps Monetary Policy Constant after Q1 Review
The monetary policy for fiscal year 2024/25, which took effect on July 16, had reduced the bank rate from 7% to 6.5% and the policy rate from 5.5% to 5%, while keeping the deposit collection rate unchanged at 3%. These rates remain unchanged in the latest review.
The bank rate, policy rate, and deposit collection rate represent the upper, middle, and lower limits of NRB’s interest rate corridor.
