Monetary Policy of 2017/18 unveiled

NRB for 'force merger'

Kathmandu, July 9: The Nepal Rastra Bank (NRB) has said that it would compel the banks and financial institutions (BFIs), that fall short to meet the criterion of raising their paid up capital, for the ‘forced merger’.

Announcing the Monetary Policy of the Fiscal Year 2017/18, Governor of the central bank Dr. Chiranjibi Nepal said that every BFI must meet the paid-up capital provision, and their Audit and Financial Reports of the current FY 2016/17 should clearly state it in their ‘Notes to Account’.

“Those BIFs that fail to raise their capital should face various punitive measures – restriction to distribute cash dividend and bonus shares, and branch expansion, limit to loan mobilization and forced merger,” reads the Policy.

As per the NRB’s provision announced two years ago, ‘A’ class commercial bank should increase their paid up capital to Rs. 8 billion.

Similarly, ‘B’ class development bank with operating license for 4 to 10 districts should have paid up capital Rs. 1.20 billion and 1 to 3 districts Rs. 500 million.

Likewise, ‘C’ class finance companies operating nationwide and in 4 to 10 districts should raise their capital to Rs. 800 million while financial institutions running business in 1 to 3 districts should have Rs. 400 million by the end of the current FY.

Through the monetary policy, the NRB has announced to provide Rs. 10 million borrowing for fixed term without interest to the BFIs that open their branches outside the district headquarters in Bhojpur, Okhaldhunga, Manang, Rukum, Salyan, Jumla, Mugu, Humla, Kalikot, Dolpa, Jajarkot, Bajhang, Bajura and Darchula.

“The central bank will also provide Rs. 10 million borrowing without interest to the BFIs for every 2500 bank accounts of Nepali citizens opened in rural and remote areas,” said Dr. Nepal.

The NRB is going to ask the BFIs to mandatorily open branches in designated local units that do not have bank’s branch so far. In case of non-compliance respective BFIs would be punished.

The productive sector lending has been raised to 25 per cent from the current 20 per cent.

According to the new policy, the BFIs should lend 10 per cent to agriculture, 5 per cent to energy, 5 per cent to tourism, and 5 per cent to other productive sectors.

It has defined hydroelectricity, agriculture, tourism, export, small and medium enterprises, pharmaceuticals, cement and garment as the priority sectors.

Dr. Nepal said that the central bank had slashed the limit of institutional deposits by 5 per cent – it should come down to 45 per cent from present 50 per cent.

Likewise, the limit of home loan is raised to Rs. 15 million from Rs. 10 million, and loan-to-value (LTV) ratio has been brought down to 40 per cent from 50 per cent in the Kathmandu Valley while outside the value current provision of 50 per cent will prevail.

The policy has eased auto loan which was controlled since the mid-term review of the Monetary Policy of the current fiscal year.

According to the new provision, an auto buyer can obtain 65 per cent loan for the vehicle against the cash payment of 35 per cent. Until now, an auto buyer should pay 50 per cent cash to buy a vehicle.

Similarly, the central bank is implementing a provision as per which a bank account holder can deposit money to his account from any branches of any bank.

Commenting on the policy, senior vice-president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) Shekhar Golchha said that the policy did not address the demand of the private sector such as fixed interest rate, interest corridor and spread rate. He said that the policy has no provision to increase investment that was needed to obtain the growth rate of 7.2 per cent.

Anil Keshary Shah, president of the Nepal Bankers’ Association (NBA) said that the monetary policy was stability-oriented rather than economic growth. According to him, it aims at controlling the lending.