Going by the new policy that the NRB board meeting endorsed on Thursday, it would extend refinance loans up to Rs 25 billion to the financial institutions against collateral of good loans that they own. NRB categorizes good loans as those that are servicing interests and principals or defaulted by period of less than three months. [break]
“The extent of the loans can be extended if such refinancing produced good results,” the official told myrepublica.com. For now, the central bank will pledge refinance loans up to 80 percent of the good loans. Also, the volume of such loan would not exceed 40 percent of the core capital of the financial institution.
The official stressed that the central bank has made every possible effort to ensure that the additional liquidity injected into the market through this new instrument is not used in investing on unproductive sectors like real estate and housing.
"We have broadly identified four sectors -- export, tourism, hydropower, agriculture, small and medium enterprises (SMEs) and manufacturing -- as most productive sectors. The new refinancing tools will focus on these sectors only," said the official.
He further stated that the board meeting also decided to charge 7.5 percent interest on such refinancing and set a condition.
However, the policy has also set a number of conditions like the non-performing assets and capital adequacy ratio of the financial institutions interested in getting refinance through the new tool should be less than 5 percent and 10.5 percent respectively.
Such refinancing will be extended for a period up to six months, but the financial institution can renew it by pledging new collaterals of good loans.
“This time we have taken into account that the loan extendable period of six months was the major reason behind the poor performance of refinancing for export sector,” said the official.
The new measures have been introduced because the long-running liquidity crunch has started affecting investments in the industrial and infrastructure sectors that not only generate huge employments and help substitute imports, but also lay basic infrastructures for the development of the country, said the official.
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