The Nepal Rastra Bank (NRB) has published the Monetary Policy for the fiscal year 2021/22.
Background of Monetary Policy
Covid-19 impact on economic development of the country. Also, major impact on BOP despite impressive export growth due to increased import It seems supportive foreign exchange reserves and inflation within targeted limit. There has impressive credit growth and decreased operating cost in business due to single digit credit interest rate. Covid also helped in rapid increment in digital transaction. Worldwide economy towards revival due to relaxed and impressive policy measures & vaccine of pandemic but revival rate is very low on economies dependent on tourism and on economies having lower access to vaccines. There is need for regulatory facilitation for quick economic recovery minimizing the pandemic effect as well as economic stability and stabilizing the adverse effects on foreign sector. Monetary policy2078/79 targeted on Covid Relief & Economic Recovery; Credit Growth Control; and Promotion of Merger & Acquisition.
CLICK HERE for Monetary Policy of 2080/81
Major Highlights
Here are the major highlights of the Monetary Policy 2078-79 one needs to know:
- Repo Rate increased from 3% to 3.5%, keeping Interest Corridor (2% -5%) and SLF Rate 5% unchanged
- CRR / SLR unchanged i.e. CRR 3% and SLR 10%, 8% and 7% for A,B & C class respectively.
- Issuance of Debenture of 25% of Paid up Capital will made mandatory for A,B,C and Wholesale Lending D Class Institution
- 1% Additional Interest on Remittance Deposited in BFIs
- Agri & SESME lending of 15% each in unchanged. Specific desk will be allocated in Commercial Bank Branch performing Government Transactions
- DSL Limit Enhancement Related to Self Employment For– Employed individual who lost job due to COVID 15 Lakhs and Hire Purchase for Self Employment up to 25 Lakhs, Women Entrepreneurship and Agri Business 20 Lakhs
- Watchlist Criteria of 2 Years continuous loss increased to 3 years continuous loss making Business Loanee
- Lockdown Period Dues – Time Extension up to Poush end 2078 (6 Months)
- Penal Interest will be waived for highly effected Tourism Sector up to 2079 Ashadh & 1 Years extension for repayment of dues & arrangement of payment in 4 installment (also for COVID impacted SESME)
- CD Ratio introduced repealing CCD Ratio (90% Maximum CD Ratio)
- Limit of Consortium Financing increased to 2 Billion from 1 Billion
- Targeted Sector Lending – Period Extended up to 2079 Ashadh ( Penalty for Poush and Chaitra waived)
- Infra Loan – Interest Capitalization Auto extension up to 2079 Ashadh
- COVID Vaccine Producer – Loan at Base Rate
- Loan Against Share – 4 Crore from one BFIs and total 12 Crore
- Counter Cyclical Buffer – Waived till 2079 Ashadh end
- SESME Production based – Base Rate + 2% Maximum
- Merger of Wholesale Lending and Retail Lending Institution Permitted
- Base rate formula will be revisited
- Merger / Acquisition of Commercial Banks – benefits
- 2079/80 as Electronic Payment Transaction Promotion year
Directions of Monetary Policy 2078/79
- Balanced Direction to match revival of economy through economic growth along with economic and financial stability.
- Continuity of current fixed exchange rate mechanism for overall price & foreign sector stability in monetary management.
- Available financial resources to be targeted towards production increment, creating employment, entrepreneurship development and sustainable & inclusive economic development.
- Liquidity management by stabilizing interest rates through effective implementation of interest rate corridor.
- Promotion and strengthen good governance of BFIs for financial sector development & stability.
- Financial intermediary to be made strong and effective Cash transaction to be minimized by promoting electronic medium of payment.
- Promotion of financial access and financial inclusion through development of financial infrastructure & financial literacy.
Economic & Monetary Goals
> Inflation within 6.5%
> Foreign exchange reserves to sustain import of goods and services for7 months.
> Broad money supply growth 18% and private sector lending growth 19%
Operating Goals and Instrument
> CRR 3%
> Bank Rate 5%
> SLF Rate 5%
> Deposit Collection Rate of IRC increased to2% from 1%
> Repo Rate increased to 3.5% from 3%
> SLR 10%, 8% and 7% for A,B & C class respectively
Provisions for Financial Sector for 2078/79
- Source Mobilization
- “B” & “C” class and Wholesale Lending “D” class to issue debentures of 25% ofpaid up capital (like commercial banks)
- Agri and Energy Bonds provisions to continue
- Additional 1% interest on deposit from remittance through banking system from Nepalese in foreign employment
- Credit Disbursement
- MSME Loans <Rs. 1 crore (15% of total portfolio) to continue
- Focal desk for agriculture, MSME loans in commercial banks undergoing govt. trans. in local levels
- Deprived sector loans to be gradually diverted towards MSME sectors.
- Business loans upto Rs. 15 lakhs to employees loosing job in tourism to be taken in DSL
- Auto Loan upto Rs. 25 lakhs for self employment to be taken in DSL
- Loan to women entrepreneurs for Micro Industries and self employment in project collateral upto Rs. 20 lakhs counted in DSL (compulsory insurance)
- Loan upto Rs. 20 lakhs to actual farmer in project collateral to be counted in DSL (compulsory insurance)
- Interest Subsidized Loan to be effectively implemented
Additional Facilities for Merger till 2080 Ashadh end
- 1 year addition to comply specified sector loan.
- 0.5% relaxation in CRR & 1% relaxation in SLR till 1 year of joint operation.
- Per institutional deposit limit to be increased by 5%
- Relaxation in 6 months cooling period to Directors & top management
- 1% relaxation in interest spread rate
- No approval of NRB required to merge branches within 1 km.
- Fit & Proper test not compulsory to promoter shareholders holding less than or equal to 0.1% shares of “A” class.
- All above facilities for BFIs acquiring problematic BFIs.
- Provision for candidacy in director either from promoter group or ordinary group option to be given to shareholders.
- Provision to open corporate office at a suitable place within workscope as well as to open correspondence office in province capital and Kathmandu to promote merger & acquisition for province level BFIs.
Customer Interest Protection
- Formulation of Financial Customer Protection laws
- At least one branch and ATM lounge of BFIs to be disabled friendly in local levels having branches more than specific limit
- BFIs to keep the link of grievance portal of NRB in their website
- Required provisions for uniformity in credit lending and KYC documents
- Required study to be done for Province Financial Institution to increase financial access in Karnali & Sudurpaschim Province
- Special monitoring & supervision for identification, measurement, evaluation and management of high risk sectors pointed by NRA,2020
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