Monetary policy aims at boosting business, reviving economy

Private sector hails the policy

Kathmandu, Jul 17

The Nepal Rastra Bank (NRB) has announced the monetary policy which is likely to bring cheers to the businesses affected by the COVID-19 pandemic as well as the individual citizens investing in the share market and planning to build a home.

Governor of the NRB Maha Prasad Adhikari laid out additional measures to support the businesses affected by the coronavirus crisis.

Loan repayment period is extended by a year for the businesses severely hit and is likely to have further time addition.

Period to repay the instalment and interest of the loans that should have been repaid before mid-July 2020 to mid-July 2021 for the businesses highly affected by the crisis, it announced in the Monetary Policy for Fiscal Year 2020/21.

Presenting the policy, Governor Adhikari said that the loan repayment period of the businesses that were severely affected by the pandemic and would take longer period to revive their businesses would be further extended as per the situation.

Likewise, businesses moderately affected by the pandemic will have nine-month extension to repay the loan’s instalment and interest.

The central bank has announced a provision to restructure and reschedule the loan of the debtor active till mid-January next year if the client presented a written action plan. However, the debtor should pay at least 10 per cent interest to get the facility.

Loan to the highly affected areas can be restructured through the instruments like private equity, venture capital, debt equity conversion and special purpose vehicle if the restructuring and rescheduling are not enough to rehabilitate the business.

To facilitate the banks and financial institutions (BFIs) in reviving the economy with additional resources, the credit to core-capital plus deposit (CCD) ratio is revised by 5 per cent to 85 per cent for the current fiscal year. It is expected to open a window for the investment of more than Rs. 183 billion.

In an effort to channelise the resources to the economic sectors, the central bank has barred the BFIs from distributing cash dividend in case they earned net profit less than 5 per cent of the paid-up capital.

Those earning higher profits can give away only 30 per cent of it in the cash dividends.

Governor Adhikari said that the provision for the commercial banks to issue the bonds equal to 25 per cent of their paid up capital has got deadline extension to mid-July 2022 from mid-July 2020.

The condition implemented for the commercial banks to prepare annual action plan including the deposit and credit mobilisation, and submit it mandatorily to the central bank after the approval from the respective bank’s board of directors will be applied for class ‘B’ development banks and class ‘D’ finance companies.

Basel III will be implemented in the national-level development banks.

 

No licences to MFI

Through the Monetary Policy, the central bank has halted the process to issue license to the new microfinance institutions and scrapped the process for the MFIs in the pipeline as well.

The MFIs functioning in the state-level have got a year extension in closing the branches and operations outside the respective state of their activity.

The interest rate of the microfinance loan is brought down to 15 per cent from the existing 18 per cent. “Collateral based deprived sector loan for the business projects in defined sectors such as agriculture and micro-enterprise is increased to Rs. 1.5 million from Rs. 700,000,” said Adhikari.

 

No licenses to PSPs

Governor Adhikari has also halted the licensing process for the payment service providers (PSPs). However, the companies that have already applied and in the process to receive license will get permission to run the digital payment business.

The PSPs that have already obtained the licenses must create minimum 300,000 customers and witness 600,000 transactions in a month, else their licenses would be scrapped.

The NRB has also announced to issue new guidelines to manage the payments made through Quick Response (QR) code, and publish a payment system development indicator.

Likewise, a national payment switch would be established and electronic payment would be promoted in all business activities as per the Digital Nepal Framework 2020.

 

Refinancing

The BFIs will get the special refinancing for export-oriented industry and sick enterprises at the rate of 1 per cent, for micro, cottage and small enterprise refinancing at 2 per cent and general refinancing at 3 per cent from the central bank. The BFIs can mobilise such refinancing at 3 per cent and 5/5 per cent respectively.

BFIs can have the facility of refinancing up to 5 folds of their existing fund. Likewise, 70 per cent refinancing will be mobilised by the commercial banks, development banks and finance companies, 10 per cent by the MFIs and 20 per cent by the central bank itself.

 

ADBL as a lead bank

The central bank has announced that the Agricultural Development Bank Limited (ADBL) would be developed as a lead bank in the agriculture sector and will be allowed to issue agricultural bonds in order to manage additional resources for the growth in this area.

Governor Adhikari also said that ‘Farmer Credit Card’ will be provided to the farmers through the ADBL to provide financial instrument and information to them.

Similarly, commercial banks must mobilise 10 per cent of their total credit investment to the energy sector. Such banks having experience and competence in energy-sector investment will be allowed to issue energy bond which will help in generating resources for the development of the sector.

According to the Monetary Policy, all commercial banks must channelise 15 per cent of their total loan – smaller than Rs. 10 million – to micro, small and medium enterprise by mid-July 2024.

Likewise, development banks and finance compnaies should mobilise 20 per cent and 15 per cent of their total loan to the MSMEs by mid-July 2024.

 

Home loan ceiling raised

Loan-collateral ratio for home-loan in commercially developed residential areas and first home of an individual is set 60 per cent. The monetary policy has maintained that the provision was announced to promote the urban development and well-managed settlement.

However, the current provision of 40 per cent collateral-loan ratio for the Kathmandu Valley and 50 per cent for elsewhere is kept as it is.

Ceilign for the margin lending is increased to 70 per cent of the value of the securities from 60 per cent.

 

Inflation within 7%

Governor Adhikari has set the inflation target at 7 per cent for this year, which is higher than the last fiscal. By the end of the 11 months of the last year, the inflation has reached 6.28 per cent while in 2018/19 inflation was 4.51 per cent.  

The Monetary Policy has aimed at maintaining macroeconomic stability and supporting the growth target of the government, promoting the expansion of economic activities, creating job s and promoting sustainable development, and enhancing the quality of financial access and services.

Senior Vice President of the Federation of Nepalese Chambers of Commerce and Industry Shekhar Golchha appreciated the Monetary Policy saying that it addressed most of the demands of the private sector. “It will definitely give relief to small and medium entrepreneurs and tourism sector. Loan restructuring and rescheduling provision are good. It is likely to increase the investment in energy and agriculture,” he said in a tweet.

Nepal Bankers’ Association also welcomed the policy appreciating most of the provisions. However, it said that the official statement would be made public later.

Published in The Rising Nepal daily on 18 July 2020.