Under the new window, commercial banks, development banks and finance companies can now receive refinancing facility up to 60 percent of their core capital to manage liquidity. [break]
Previously, the central bank was providing refinancing only to facilitate lending in the productive sector at lower interest rate. And the recipients were pledged refinancing facility up to 40 percent of the core capital.
The new facility, however, has been opened only for a short period. “BFIs can take it for 120 days,” reads a circular that NRB issued on Thursday.
The central bank has said that will provide the BFIs refinances up to 80 percent of good loans that they pledge as collateral. The BFIs can enjoy refinancing facility at 7 percent interest rate, which is almost half of the prevailing rate in inter-bank lending -- a means which BFIs were largely resorting to manage their regular obligations.
NRB has also said that the BFIs making use of the facility should also submit their liquidity management plan to it within 15 days.
“Our assumption is that the facility will be used by the BFIs that are seriously cash-strapped. Hence, we have sought the plan to make sure that the management has a clear vision on how it plans to build sustainable liquidity on its own,” said another NRB source.
The NRB incorporated this condition mainly as latest accidents in the financial sector showed that BFIs, mainly financial institutions that were largely relying on institutional depositors for garnering fund, had not seriously worked out alternate strategy to manage liquidity in case those bulky depositors withdrew their money.
Withdrawal of their deposits by NRB and Nepal Army Welfare Fund over the last few weeks had suddenly pushed People´s Finance Limited and Vibor Bank to a grave crisis. Situations in other financial institutions are no better.
Apart from forcing corrections in management practice, officials said the need to submit liquidity management plan will also compel the banks to think in the line of liquidating ´speculative land´ loans and disposing non-banking assets.
Although the real estate market has stagnated over the past year, affecting their fund flow, BFIs were still refusing to liquidate them, slowing down corrective measures in the property market.
“With the condition, now the BFIs seeking refinancing to manage liquidity will have to plan for disposal of such loans and land and housing they have invested on,” said a source.
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