NRB unveils monetary policy, aims to reduce interest rate
The Nepal Rastra Bank (NRB) has introduced its Monetary Policy of the Fiscal Year 2018/19, slashing the spread rate from 5 per cent to 4.5 per cent in an attempt to give relief to the private sector investors. This move will contribute to slightly reducing profits on the part of the banks and financial institutions (BFIs), but will ensure multiple resource bases for them. It will also create additional liquidity in the banking system. Five per cent spread means the banks could charge up to 17 per cent interest in loans against 12 per cent in deposit mobilisation. Private sector investors have been seriously impacted by the ever growing interest rates in the past couple of years as the banks kept on hiking the interest rate since they had to pay up to 12 per cent interest to the deposits as the banking industry was going through prolonged liquidity crisis. Business community has welcomed the move. To equip the BFIs to withstand the liquidity crisis, the central bank has set a new ceiling for the Cash Reserve Ratio (CRR) at 4 per cent for all BFIs—from 6 per cent for the commercial banks, 5 per cent for development banks and 4 per cent for finance companies. This single provision will generate additional Rs. 48 billion rupees liquidity in the banking system. Likewise, the Statutory Liquidity Ratio (SLR) is reduced from 12 per cent to 10 per cent for commercial banks, 9 to 8 per cent for development banks and 8 to 7 per cent for microfinance companies. The NRB has cut down the limit of margin lending from 40 per cent to 25 per cent which means the banks now can mobilise the loan against the collateral of shares should not cross 25 per cent of the paid up capital of the respective BFI. But the overall size of margin lending won't come down as the paid up capital of the commercial banks have been increased to Rs. 8 billion each from Rs. 2 billion each. In the monetary policy, the central bank has adopted a merger policy for the class ‘D' microfinance institutions (MFIs). The central bank has allowed the commercial banks and MFIs to accept loan, 25 per cent of their paid up capital or Rs. 2 billion each as of now, in convertible foreign currency and Indian currency from foreign banks.
It has redefined the deprived sector lending and made a blanket provision for all BFIs instead of the existing 5 per cent of total lending of commercial bank, 4.5 per cent of development bank and 4 per cent of finance companies. It has come hard on the overdraft and other revolving individual loans and cut down the limit of such loans by Rs. 2.5 million, from Rs. 7.5 million to Rs. 5 million.