KATHMANDU, Feb 26: Nepal Rastra Bank (NRB) has reduced the provisioning rate of good loans for banks and financial institutions (BFIs) from from 1.10 percent to one percent.
Announcing a review of the monetary policy on Tuesday, the NRB said it has reduced the provisioning by a marginal rate as BFIs have been struggling to maintain heavy amounts in provisioning due to the soaring rate of bad loans. According to bankers, the new rate could give some respite to the BFIs in the present context.
Based on the overdue period of the loans issued by banks, the NRB has categorized the BFIs’ credit as good, sub-standard, doubtful and bad loans.The loans that are overdue for three months after the date of maturity are considered good loans.
Apart from seeking the NRB’s action to revise the threshold of non-performing loans under categories of sub-standard, doubtful and bad loans, the BFIs have been urging the central bank to reduce the provisioning rate of good loans at just 0.75 percent.
Meanwhile, the NRB has increased the ceiling of primary capital on non-derivable forwards to 20 percent from the existing 15 percent. The loan to value ratio for all types of individual vehicles and electric vehicles has been maintained at 60 percent.
Through the revised monetary policy, the central bank has set a target to align the interest rates of microfinance loans with their base interest rates.
The NRB has maintained policy rate unchanged at five percent. Likewise, the minimum interest rate of deposit collection remains unchanged at 3 percent per annum, while the upper limit of interest rate corridor has been given continuity at 6.5 percent per annum. There has been no change in the required cash reserve ratio and statutory liquidity ratio.
The NRB clarified that the policy rate and bank rate have been kept constant due to the ease in liquidity in the banking system. While the base interest rate and interest rates of deposit and loans have come down significantly, the weighted interbank rate stood at three percent as of mid-February, down from 3.04 percent in the same period last year.