Banks given right to evaluate customers: NRB

 Monetary Policy 2021/22

Kathmandu, Aug. 27

Governor of the Nepal Rastra Bank Maha Prasad Adhikari has said that it is impossible to reach every entrepreneur or borrower across the country with the limited resources.

There will always be limitations even if the economy grows exponentially so eligible entrepreneurs or individuals will obtain loan from the banks and financial institutions (BFIs), he said while speaking at a discussion on the Monetary Policy for the current Fiscal Year 2021/22 organised by Nepalese Association of Financial Journalists (NAFIJ) on Friday.

According to him, monetary policy has its limitation and it supports the businesses and people while remaining within that limitation.

“Rs. 4200 billion loan is mobilised by the BFIs so far and still it is not possible to support everyone. Therefore, the central bank wants to mobilise the BFIs to evaluate the borrowers as they know their customers better than any other institutions including the NRB,” he said while addressing the virtual programme.

 “Monetary policy has given the responsibility to the BFIs to identify reliable customers and mobilise concessional loans. If the customer goes bankrupt, respective BFI will be in trouble so this is launched with a pragmatic approach,” he added.

Reiterating that the first priority of the central bank was the recovery of the COVID-19 affected business and industries, Governor Adhikari maintained that hardest hit businesses were given higher priority rather than opting for the blanket facilitation policy adopted last year when the first wave of the COVID-19 pandemic battered the economy and businesses.

A novel policy

The governor termed the policy to set 2 per cent premium on small size loans below Rs. 10 million as a ‘novel policy’ of the NRB. There are 1.68 million borrowers, of which 1.6 million are small borrowers.

Governor Adhikari defended the move of the central bank to cap the margin lending. “There was a trend of obtaining margin lending at the highest using the shares bought every time. NRB wants to check the cycle of getting/demanding loans against share certificates, while keeping Rs. 120 million limit which is among the highest compared to the neighbouring countries,” he said.  

This provision has saved the BFIs from unwanted pressures from the investors. However, business associations like the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), Nepal Chambers of Commerce (NCC) and Confederation of Nepalese Industries (CNI) are voicing against the provision to soothe their members and, probably, the vote banks, according to the governor.

Finance innovative ideas

Vice-President of CNI Rohit Gupta suggested that innovative ideas should get easy financing support from the BFIs.

He said that standards and parameters for the various levels of industries is different based on the individual ministry which has created obstacles in making concentrated lending.

Gupta also said that while many 'real sector' enterprises are willing to come to the stock market, there is a policy gap for the same.  

Export promotion ignored

Secretary of the Federation of Nepalese Export Entrepreneurs Association (FEEN) Tenzing Sherpa said that the Monetary Policy was almost silent on export promotion.

According to him, obtaining refinancing facility for the small and medium enterprises was a tough task as every bank demands separate types of documents to extend refinancing.

“There should be uniform policy for refinancing across the BFIs. Regular capital loan should also be provided at lower interest rates,” he said.

Stating that export oriented enterprises are not getting refinancing easily, Sherpa said that they have not felt relief in terms of the facilities announced to rehabilitate the businesses battered by the COVID-19 pandemic.

Contracted policy

Senior Vice President of NCC Kamlesh Kumar Agrawal maintained that in terms of loan mobilisation, the policy is contracted.

He also said that there was a challenge in evaluating the enterprises by the BFIs to extend loans. BFIs do not have system and expertise to evaluate the business and they might not be fair to some businesses, he said. 

According to him, it is an impractical to approach three banks to get maximum loan of Rs. 120 million in margin lending.

“I hope that the central bank will review the policy in the periodic review of Monetary Policy,” he said. 

Banks want to set interest rates

President of Nepal Bankers' Association Bhuvan Dahal demanded that the NRB should allow the BFIs decide about the interest rate in terms of large enterprises.

He said that while depositors are getting better rate at fixed deposits, even higher than the inflation rate, due to the competition in the market, banks’ income is contracted which is limited to 11-12 per cent return.

“If we minus share market, the BFIs do not have significant industrial growth. Some of the hardest hit sectors need better address while some sectors have made good recovery and earned good returns as well so banks should have the say on the interest rates on large enterprises,” he said.

Dahal suggested the NRB to implement the Credit Deposit ratio in three stages: 92 per cent by mid-Januray 2022, 91 per cent by mid-April and 90 per cent by mid-July.

President of Development Bankers Association Pradhyuman Pokharel said that there should be a system to recognise the good players to motivate the BFIs to make further improvement.

Likewise, President of Nepal Microfinance Banker’s Association Basanta Lamsal maintained that the Monetary Policy was not clear about cross-holding of the BFIs.

He appreciated the priority of the policy to merger and acquisition of the microfinance institutions and approval to establish their contact offices in the capital city.

Representing Nepal Finance Companies Association, Chief Executive Officer of ICFC Finance, Sunil Pant, said that iquidity is under pressured with the beginning of the fiscal year but finance companies are in comfortable position. 

Published in The Rising Nepal daily on 28 August 2021.