Merger top priority

Monetary Policy 2019/20

Kathmandu, July 24

Nepal Rastra Bank Governor Dr. Chiranjibi Nepal has announced the Monetary Policy for the Fiscal Year 2019/20 with emphasis on the merger of commercial banks and microfinance institutions and expansion of monetary instruments to agriculture and small and medium enterprises (SMEs).

He has announced incentives for the big merger – merger of class 'A' commercial banks that have at least Rs. 8 billion paid-up capital – that happen within the current fiscal.

Unlike the other commercial banks, the institutions opting for merger will have additional one year space to meet the priority sector lending provision and issue bonds equal to a quarter of paid up capital till mid-July 2021.

"The duration to maintain the spread rate at 4.4 per cent has also been extended to 2021 mid-July for the commercial banks that go for the merger. Similarly, they need not to get approval from the central bank to expand their branches," said Dr. Nepal. "Cooling period provision will also not be applied for those institutions."

According to NRB provisions, members of the Board of Directors, chief executive officers, deputy CEOs of the Bank and Financial Institutions (BFIs) cannot join other BFIs in any capacity for at least six months from the quitting of their previous job.

The Monetary Policy has also announced incentives for microfinance merger as well.

They will also enjoy provisions like 'no cooling period' and increased lending ceiling to Rs. 1.5 million from existing Rs. 1 million collateral-based lending to the group members in the rural municipality. They also can take their staff's salaries and allowances as deposits.

Dr. Nepal said that the BFIs that have a sizable investment from a single investor would be kept in priority for the merger and acquisition.

"Consolidation of the BFIs is given priority in order to enhance the access of people in the financial services and increase the banking sector's capacity in resource mobilisation," he said.

The new Monetary Policy has asked the commercial banks to issue bonds equal to 25 per cent of their paid-up capital. The money raised from selling the bonds can be mobilised in loans.

Banks to accept gold deposit

The central bank has announced that it will formulate a policy to deposit gold in the banks. The ceiling of loan amount that required the Permanent Account Number (PAN) is reduced to Rs. 5 million from the existing Rs. 10 million.

"BFIs can accept fixed deposits from the institutional foreign depositors or Non-Resident Nepalis in foreign currency for more than two years. The banks having such deposits can mobilise loan equal to such deposits in Nepali currency," said Dr. Nepal.

The bank rate (interest rate charged by the NRB to the domestic BFIs while lending money to the latter) is reduced to 6 per cent from existing 6.5 per cent.

Likewise, special refinancing rate is not changed from the current 1 per cent but common refinancing rate is brought down to 3 per cent from 4 per cent. Similarly, the BFIs mobilising the special refinancing can charge 3 per cent interest at the most as in previous years, but they can charge up to 7 per cent interest in common refinancing.

The 10 per cent Statutory Liquidity Ratio (SLR) for commercial banks, 8 per cent for development banks and 7 per cent for finance companies is kept intact.

SME refinancing rate 3 per cent

 The central bank has announced that the interest rate of the collateral-based refinancing facility up to Rs. 1 million to the SMEs will be reduced to 3 per cent from existing 5 per cent while the BFIs can charge only 7 per cent interest in such loans. Previously, they were charging 10 per cent in mobilising the refinancing facility.

Small and medium size loan to agriculture and agro-industry is simplified through the Monetary Policy. It has announced to make provisions to facilitate such lending with allowing the BFI to charge plus 2 per cent interest on the base rate, no service charge and no advance payment charge.

"Such loans must be approved within seven days from the application date. If the respective BFI is unable to mobilise the loan, it must provide clear reason to the customer," said Governor Dr. Nepal.

The Infrastructure Development Bank cannot lend less than Rs. 30 million to any project.

Consumer Protection

The NRB will have Financial Consumer Protection Unit at its headquarters to address the grievances of the customers and enhance credibility of the banking industry.

New provision will be implemented whereby the BFIs should provide information about their services to consumer through the Audio Notice Board, free of cost. They will also need to maintain their official websites in Nepali language and install Cash Deposit Machines (CDM).

 Dr. Nepal said that the NRB had adopted policy to expand the financial services to all 6,743 wards of 753 local units and the BFIs need not to get approval of the central bank to open branchless banking in the wards.

Microfinance companies can open a branch in the metropolitan city or sub-metropolis or district headquarters only after establishing a branch in municipalities and rural municipalities other than the district headquarters. They have to mandatorily mobilise one-third of their lending to agricultural sector.

Published in The Rising Nepal daily on 25 July 2019.