KATHMANDU, June 20: Private sector leaders have said that the monetary policy for the coming fiscal year 2017/18 should address the current problem of high interest rates and shortage of lendable funds in the banking system.
Speaking at an interaction organized by the Nepal Rastra Bank (NRB) to collect suggestions from the private sectors and other stakeholders for the new monetary policy, they said that there should be easy availability of cheaper loans to sustain economic growth that the country has achieved in the current fiscal year.
“The biggest challenge is to sustain the economic growth that we are going to achieve in the current fiscal year. For that, there is a need to increase investment and resources in productive sectors,” Shekhar Golchha the senior vice president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said in the interaction.
Anal Raj Bhattarai, a member of the national council of Confederation of Nepalese Industry (CNI), agreed with Golchha. “Interest rates have been very unpredictable and the credit is likely to be more expensive in the upcoming fiscal year,” Bhattarai, who is also a former banker, said, warning that credit crunch could put a damper on the growth engine.
Similarly, Kamalesh Agrawal, the general secretary of Nepal Chamber of Commerce (NCC), said that the shortage of bank funds and continuous rise in lending rates are likely to pose challenges to economic growth. “The upcoming monetary policy should be expansionary. But the focus should also be on controlling inflation. There should be easy availability of loans to the private sector,” added Agrawal.
As breach of the prudential lending limit has hit the capacity of bank and financial institutions (BFIs) to expand fresh credits, bankers have sought continuity of the relaxation measure offered by the central bank through the mid-term review of monetary policy for the current fiscal year.
“Once the relaxation on including productive sector loans in the CCD ratio of banks expires from mid-July, many banks will have to face penalty daily due to breach of the prudential lending limit,” Gyanendra Dhungana, vice president of Nepal Bankers Association -- the umbrella organization of 28 commercial banks of Nepal - said. “This relaxation should be continued for at least one more year,” he added.
After the CCD ratio reached or breached the upper limit of 80 percent, which crippled lending capacity of commercial banks, the central bank has decided to allow BFIs to deduct 50 percent of their total lending in productive sector which allowed them to float fresh loans without requiring them to collect fresh deposits until mid-July. The decision was criticized by the International Monetary Fund which has also urged the NRB to withdraw it promptly when the facility expires in mid-July, stating that the temporary regulatory relief granted by the central bank would allow for continued rapid credit growth and raises macro-financial risks.
Executives of development banks have also urged the NRB for relaxation on CCD ratio and interest spread for development banks. “There should be a different interest rate spread for development banks because the operating cost of development banks is high compared to them. Otherwise, it would be discriminatory,” Bharat Raj Dhakal, president of Development Bankers Association of Nepal, said. “Lending to the deprived sector made by the development banks should be allowed to deduct in calculation of CCD ratio,” he added.
Major Suggestions for Monetary Policy:
-Put the new upper limit for consortium financing of Rs 1 billion on hold: FNCCI
-Remove the lending limit for auto loans to 50 percent of the value: FNCCI
-Keep interest rates for hydro projects unchanged as they sign PPA on fixed rate: FNCCI
-Give the option of fix and floating lending rates for entrepreneurs: FNCCI
-Redefine 'productive sector lending': FNCCI, NBA, NCC, CNI
-Up maximum limit for home loans to Rs 20 million from existing Rs 10 million: NBA
-Increase the fund for refinancing to at least Rs 100 billion: FNCCI, CNI, NBA, NCC
-Allow banks to work as brokerage firm: NBA