“Further fall of Nepal Stock Exchange (Nepse) index will do no good to investment climate. The central bank will take appropriate steps to restore the confidence,” NRB Governor Dr Yuba Raj Khatiwada said. [break]
Talking to media persons, he said the central bank was discussing the issue at the high-level Economic Coordination Committee meeting scheduled for Thursday. He even indicated that the central bank might relax its presently tightened provision on margin lending -- loans extended to shareholders against share certificate as collateral.
The review is being considered mainly after investors blamed the central bank´s tight policy on margin type lending as one of the key reasons behind dismal stock market outlook.
Going by the central bank´s directives, the lending banks can renew margin type lending only if borrowers repay at least 25 percent of their loans and clear all liabilities, including interests.
Investors and stockbrokers have claimed that this provision along with margin call in case of drop in the market price of the collateral-pledged shares has checked flow of the much-needed capital in the market.
“How can the market regain confidence if the capital is not flowing in?” questioned a stock market official.
Moreover, investors and the secondary market officials have been piling pressure on NRB to review its policy, which the central bank announced as its intervention to cool down the overheated market over a year ago.
The central bank had tightened money flow in the capital market after Nepse index hit 1,175 points on August 1, 2008, defying all fundamentals. It had unveiled stringent margin call provisions in January 2009, mainly expressing concerns over negative impact of possible market crash on BFIs financial health.
Though it relaxed the provisions on margin call and renewal in February 2010, the stock market players have continued to argue that it will not encourage investors.
Bankers too have been pushing the central bank to at least allow them renew the loans in which borrowers are timely repaying interest and settling other liabilities, withdrawing the condition of 25 percent principle repayment.
“We will look into all possible options to ease investors. We have no problem in relaxing the existing policy, if we are assured that the changes will not hits banks´ financial health,” said Dr Khatiwada.
According to NRB, the banks have over Rs 9.5 billion in loans under the margin type lending.
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