Central bank urges BFIs to focus on financial stability

Kathmandu, Aug 21

Banks and financial institutions (BFIs) should focus on financial stability and interest rate stability in order to enhance their credibility and create better business and investment climate, said the Nepal Rastra Bank (NRB).

Increasing confidence of the depositors is also equally important in order to maintain the liquidity in the system, Dr. Gunakar Bhatta, Spokesperson of the NRB, said at a webinar on ‘Monetary Policy: Challenges ahead and way forward’ organised by Management Association of Nepal on Friday.

He also maintained that the liquidity in the system would also be maintained by the foreign financial support as the multilateral agencies have been providing crucial support to the country after the pandemic outbreak.

“The government will manage budget for the infrastructure development through the foreign aid even if the revenue dwindled,” he said.

Dr. Bhatta said that the BFIs will have the interest benefit due to the coronavirus impact and lockdown but at the cost of the economic growth. According to him, 6-7 per cent inflation and 10-11 per cent lending rates are expected this year.

He said that the monetary policy for the current fiscal year 2020/21 had tried to reinstall the business confidence during the crisis, but the prolonged pandemic situation and lockdown would demand further stimulus due to the looming uncertainty. The policy has also addressed the exorbitant interest rates in the microfinance.

He suggested to continue with the development activities even during the coronavirus pandemic to provide the minimum fuel to the economy.

Dr. Bhatta said that the refinancing facility could be utilised five times of its actual size which was a great opportunity, however, the implementation part did have some challenges. “We are trying to manage monetary policy instruments,” he said.

He suggested the BFIs to begin creating environment to mobilise the capital to the priority sectors so that good business could be generated when the situation returns to normalcy.

The central bank through the monetary policy has accorded priority to the agriculture, energy, and small and medium enterprises.

Bhuvan Kumar Dahal, President of Nepal Bankers’ Association (NBA), said that the banking and private sectors’ demands for the instruments of confidence building and the policy were addressed. It was a policy departure, he said.

According to him, refinancing mobilisation from every branch of the bank is a good policy as it will ensure that the businesses of smaller sizes and in the remote areas will also be benefitted.

However, he said that since banks’ administrative cost was high, the interest for the refinancing should be at 7 per cent to motivate the banks.

“However we are ready to mobilise it at 5 per cent, the rate set by the central bank,” he maintained.

Chandra Prasad Dhakal, Vice-president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said that refinancing limit for tourism sector business will be too small and might not address the challenges of the sector since it was the highly affected by the pandemic.

Economist Prof. Dr. Chandra Bhadra said that entrepreneurs running micro and cottage enterprises don’t have good access to the banking and the promotion of digital banking will not benefit them as they don’t have the devices that are required to access the modern banking services.

“Women entrepreneurs are not well documented and the government doesn’t know their whereabouts. Most of the micro and cottage entrepreneurs even don’t know about the facilities announced by the central bank,” she said.

She suggested the government to identify the returnee women migrant workers and provide financial support to them to run business. Such interventions should be implemented at the ward level.

Published in The Rising Nepal daily on 22 August 2020.