Highlights of Monetary Policy 2078/79
Lets look at the major highlights of monetary policy unveiled by Nepal Rastra Bank for Fiscal year 2078/79.
Economic Growth
- According to the preliminary estimate of the Central Bureau of Statistics, the economic growth rate of fiscal year 2077/78 was 4.01% however maintenance of the current growth rate is challenging due to effects of 2nd wave of COVID 19 in the fourth quarter.
- In FY 2077/78, it is estimated that the Gross Domestic Savings (% of GDP) was 6.6 % and the Gross National Savings to be 31.4%. These ratios were 6.3 % and 32.6% respectively in previous year.
- In FY 2077/78, the ratio of GDP to total fixed capital formation is estimated to be 27.3% which was 28.4 % in previous year.
- Annual point based customer inflation stood at 3.60% for the FY 2077/78 whereas average consumer price inflation stood at 4.19%.
- Exports increased by 44.4% to Rs 141.12 Arba and imports increased by 28.7 % to Rs 1,539.84 Arba. The trade deficit increased by 27.3%.
- The remittance flow increased by 9.8% to Rs 961.05 Arba.
Economic and Monetary Target
- Monetary policy has targeted to keep inflation within 6.5% for the fiscal year 2078/79.
- Nominal GDP has been taken on the basis of monetary projections. Given this the limit for the growth of broad money has been set at 18%. Further 19% limit has been set for private sector lending in 2078/79.
Operating Target and Instruments
- Cash reserve ratio to be maintained by the BFI's has been unchanged at 3%.
- Bank rate applied for the purpose of lender of last resort facility has been kept unchanged at 5%.
- Statutory Liquidity ratio (SLR) has been kept unchanged at 10%, 8% and 7% for commercial banks, development banks and finance companies respectively.
- The existing standing liquidity facility (SLF) rate as the upper bound of interests rate corridor has been unchanged at 5% and the deposit collection rate as the lower bound has been increased from 1% to 2%. Repo rate as the policy rate has been increased to 3.5% from 3%.
Arrangement in Financial Sector
- Arrangement shall be made for issuance of debenture of 25% of the paid up capital for national level development banks, finance companies and microfinance involve in whole sale lending.
- Additional 1% interests rate in case of remittance received and deposited in banks and financial institutions.
Loan Disbursement
- Commercial banks to extend at least 15% of their total credit to agriculture, micro, small and medium scale industries up to Rs 1 crore or less has been kept unchanged.
- Arrangement will be made to set up a focal desks in branches of commercial banks operating for government transaction in gaunpalika and municipality to encourage the flow of credit in agriculture, micro and household sectors.
Deprived Sector Lending
- Following loans will be categorized under deprived sector lending :
- Loan up to Rs. 15 lakh for the people who have lost their jobs due to COVID 19.
- Vehicle loan up to Rs 25 lakh for the purpose of self-employment.
- Mahila udhyami karja up to Rs 20 lakh. However loan should be compulsorily insured.
- Loan up to Rs 20 lakh on agriculture business on the collateral of agriculture project. However loan should be compulsorily insured.
Extension of Loan repayment period, loan restructuring and rescheduling
- Watchlists criteria of consecutive 2 year loss has been changed to business with consecutive loss for 3 years.
- BFIS's by itself can reduce the installment amount and extend the payment period analyzing the financial status and cash flow position of the loanee.
- After evaluating the financial status, time extension up to poush 2078 for EMI/EQI or capital repayment, to be made by end of Asar 2078 during prohibitory period .
- Arrangement will be made to keep separate accounts of interests accrued till Asar 2079 for most affected sectors such as hotels, travel, trekking and air services. No additional penalty and interest shall be accrued on such account.
- Time extension for one year will be allowed with arrangement of repayment in 4 installments for mostly affected sectors due to COVID 19 such as restaurants, party palaces, public transport, educational institutions and entertainment purpose, having repayment up to poush 2078.
- Restructure and reschedule by end of Poush 2078 for loans disbursed in mostly affected sectors due to COVID 19 such as tourism, film industry, party palace, public transport, educational institutions.
- Additional loan up to Rs 2 lakh per vehicle for operation and maintenance of public transport affected by COVID 19.
Additional Provisions related to loan
- Credit Deposit ratio (CD) has been introduced repealing Credit to Core Capital plus Deposit ratio (CCD). CD ratio to be maintained with maximum limit of 90% until Asar 2079.
- Limit of consortium financing has been increased from 1 Arba to 2 Arba.
- Sectoral Loan for commercial banks to be maintained by Asar end 2078 has been extended till Asar 2079.
- Arrangement will be made to capitalize interest for project under grace period for which prior approval of NRB has been taken for capitalization of interests.
- Arrangement will be made to capitalize interest for loans under grace period disbursed to long term agricultural projects such as vegetables, masala and jadibuti.
- Loan at base rate to establish the industry/ business units to produce vaccines approved by GON for the treatment of epidemic disease.
- Loan against shares: Rs. 4 crore from single financial institution and Rs. 12 crore from overall financial institution for a individual/entity.
- Arrangement of refinancing facility for establishing charging station.
- Easy flow of credit to establish hospital up to 100 beds in local bodies where there are no hospitals.
Merger and Acquisition
- Benefits of merger/acquisition of commercial banks within 2078/79.
- 1 year extension for sectoral lending.
- CRR 0.5% waive for 1 year from the date of joint transaction.
- SLR 1% waive for 1 year from the date of joint transaction.
- 5% additional institutional customer deposit limits.
- Applicable cooling period of 6 months waived for BOD and top management level.
- 1% additional interests spread
- CD ratio if exceeds shall be waived for 1 year.
- Can adjust branches within 1 km without prior approval.
- Fit and Proper tests waived for sale of promoter shares of promoters holding 0.1% or less shares.
- Wholesale microfinance can indulge itself in retail operations if merged with retail microfinance institutions.
- Microfinance institutions with cross holding of commercial banks, development banks or finance companies are required to go into merger/acquisition by Asar 2079.
Regulation and Supervision
- Counter Cyclical buffer waived till Asar 2079.
- Arrangement will be made to provide long term loans at fixed interest rate. Additional these rates has to be published along with monthly published interests rate.
- Maximum premium to be added will be 2% for loan amounting to Rs. 1 crore or less for the purpose of operation of business.
- Arrangement shall be made to issue guidelines for overdraft and working capital loan to make it more effective and transparent.
- Guidelines to be issued for CSR expenses.
- No approval required for opening liaison office at Karnali and Far western provinces.
- Development of E-KYC for ease of provisions related to KYC.
- Publication of financial report as per NFRS for National level microfinance institutions.
Disclaimer : This is for general information purpose only. You should not rely on the information contained herein for making any decisions.
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