Nepal Rastra Bank (NRB) has reviewed its monetary policy for the first quarter of the current fiscal year 2021/22 considering the needs to manage the growing credit demand and increase the scope of resources mobilisation. Nepal is currently facing liquidity crunch as people have started investing their money in various sectors including share market and housing.
The central bank Friday made public the first quarterly review of the monetary policy for the current fiscal year to maintain the existing cash reserve ratio, bank rate and statutory liquidity ratio.
As the economic recovery picks up, credit flows and imports have increased at a higher rate. Accordingly, the policy direction of the monetary policy has been continued in view of the need to manage the growing credit demand and avoid shortage of resources in the productive activities, according to the central bank.
In addition, monetary management will be made effective keeping in view the recent pressures on the balance of payments and the possible pressure on inflation.
As per the new provision of monitory policy, the Banks and Financial Institutions (BFIs) are required to implement the action plan to maintain the Credit-Deposit Ratio within the prescribed limit by mid-July 2022 after getting approval from the Board of Directors and submitting it to the NRB.
It said provision would be made to keep cash margin compulsorily when opening import letter of credit for specified goods.
Arrangement will be made to provide exchange facility for importing silver only up to the maximum exchange facility of the amount provided while importing through draft / TT, the NRB said.
The NRB said that the arrangement had been made for the commercial banks to issue bank guarantee if the Nepali firms and companies related to commercial agriculture, manufacturing industry, infrastructure construction and tourism want to take institutional loan from abroad.
The existing arrangements, including interest rate and fees for foreign currency loans will be reviewed.
NRB has assured that the system of collecting foreign currency deposits from foreign institutions involving non-resident Nepalis will be simplified.
The central bank has not changed the existing provision for share loan. Similarly, the limit of share pledge has been kept at 70 per cent.
The NRB had made an arrangement to take loan up to Rs. 40 million from one bank and up to Rs. 120 million from all banks by taking share pledge through monetary policy in the current fiscal year.
However, the share investors have been demanding to review the existing system for the improvement of share market since the introduction of this provision.
With the expansion of economic activity, imports are increasing but remittance inflows, which are an important source of foreign exchange earnings, are shrinking. However, the NRB said that inflation was under control by the date.
In the fiscal year 2021/22, the target was to keep the average annual consumer inflation within the range of 6.5 per cent. In the first three months, the average consumer price inflation was 4.03 per cent.
As credit expansion is higher than deposit mobilisation of banks and financial institutions, liquidity is under pressure.
In order to mobilise long-term finance for the development of agriculture and energy sector, the process of issuance of additional bonds by the commercial banks has been taken forward as per the provision of commercial banks to issue agricultural bonds and energy bonds.
The NRB has stated that the provision to provide one per cent more interest on remittance of Nepalis in foreign employment to banks and financial institutions has come into operation.
In view of the impact of the COVID-19 pandemic on the overall economy, a directive has been issued to categorise the debtor firms, companies or institutions which were provided loans by banks and financial institutions into micro-monitoring category only if they are in net loss for three consecutive years.
Of the debtors whose loans have been disbursed by banks and financial institutions, a provision has been made to reduce the installment amount and extend the repayment period by analysing the debtors who have negatively affected the financial condition and cash flow due to COVID-19.
Deprived sector lending
The NRB has made an arrangement that the loans of up to Rs. 1.5 million flowing to run a business of the people who have lost their jobs in the tourism sector due to COVID-19 can become self-employed can be counted as poor class loans.
The NRB has revised the refinancing procedure to provide special refinancing to internet service providers providing services in remote places by promoting broadband and providing internet access to the public.
Similarly, the refinancing procedure has been amended so that refinancing will be available in the loans flowing for the establishment of charging stations required for electric vehicles.
Concession loan for construction of 100-bed hospital
The central bank has also made arrangements to provide loan concessions for the construction of hospitals at the local levels where there are no hospitals. In order to build a 100-bed hospital at the local level where there is no hospital, a loan of up to Rs. 200 million can be given by adding 2 percentage point premium to the base rate.