The abolishment of the practice to charge penal rate will bring down borrowing cost for banks and financial institutions despite the hike in policy rate. [break]
Earlier, the central bank charged coupon rate of 91-day treasury bills or policy rate, whichever was higher, coupled with three percentage points penal rate while issuing loans to banks and financial institutions on security of treasury bills and development bonds.
“From now on the central bank will charge flat interest of eight percent on such loans,” says the latest central bank directive.
Likewise, the interest rate on the central bank´s lender of the last resort borrowing facility, which is made available to banks and financial institutions for a period of up to six months, will stand at eight percent. Earlier, the central bank charged an interest of seven percent and additional three percent penal charge on such loans.
The central bank has also raised the capital reserve ratio (CRR) -- portion of deposits which banks must park at the central bank -- to six percent for commercial banks from the previous five percent, the directive says. CRR for development banks has also been raised to 5.5 percent from the previous five percent. However, the rate for finance companies has remained unchanged at five percent.
“Banks that do not maintain the compulsory reserve the first time will be fined amount equivalent to whatever is derived by charging the policy rate on the deficit amount. Banks that fail to maintain the reserve the second time will be fined 1.5 times the amount -- a reduction from twice the amount charged in the past. And banks that are caught not maintaining the reserve the third time will be slapped a fine of double that amount -- down from three times the amount charged in the past.
The latest directive has also redefined agricultural sector by adding components like agricultural tools, cold storage facilities, livestock feeds and processing units of tea, coffee, ginger and fruits.
Likewise, the directive has also raised the ceiling on micro loans for low-income individuals on group guarantee basis to Rs 100,000. Similarly, NRB has also raised the ceiling on secured group loans to Rs 300,000, while individuals who are not associated with microfinance groups can get secured loans of up to Rs 60,000.
The directive also says banks and financial institutions cannot issue loans of Rs 10 million or above to anyone who has not obtained Permanent Account Number (PAN).
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