Dev banks seek flexibility in prudential lending limit

Published On: June 19, 2019 08:25 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, June 19: Development Bankers Association Nepal (DBAN) has urged the Nepal Rastra Bank (NRB) to allow 'B' class development banks to deduct loans floated to agriculture sector in excess to the regulatory requirement in the credit to core capital plus deposit (CCD) ratio.

The suggestion of the umbrella organization of development banks is aimed at easing the shortage of lendable fund in the banking system while also encouraging them to increase loans to the agriculture sector.

Submitting an 11-point suggestion to the NRB to be addressed through the monetary policy for Fiscal Year 2019/20, the DBAN has sought a relaxation in the way the CCD ratio is calculated. As per its proposal, agro loans exceeding the regulatory requirement should be allowed to deduct in the CCD ratio.

CCD ratio is a prudential lending limit enforced by the central bank, restricting bank and financial institutions (BFIs) to lend more than 80% of their combined capital and deposits.

If this measure is introduced, development banks will be allowed to disburse new loans equivalent to agro loans without mobilizing new deposits even if they are close to breaching their lending limit.

Development banks are required to float at least 10% of their loans in priority sector including agriculture.

“This will encourage development banks to help meet the government's target by increasing investment and lending in the agriculture sector,” reads the list of suggestions submitted to the central bank last week.

The association has also sought flexibility in deducting loans directly floated to deprived sector exceeding the CCD requirement, as well as the investment higher than the requirement in the cash reserve ratio and statutory liquidity ratio. 

Similarly, it has also advised the central bank to increase the limit and maturity period of the refinance fund to ease the liquidity crunch and offer a respite to productive sector which has been facing shortage of loans. 

Stating that the refinance fund limit of Rs 35 billion made things easier for BFIs in CCD and liquidity management as well as provide some relief to borrowers of productive sector, the DBAN has asked the NRB to increase the limit and maturity period of the refinance fund. 

Currently, the central bank provides refinance facility for up to six months. Bankers and private sector leaders have been demanding that maturity period of loans refinanced by the central bank be increased.

Development banks have also asked the central bank to allow it to issue credit card and foreign currency prepaid card. So far, only commercial banks are allowed to issue such cards. 

The DBAN says that such a decision would promote the cashless transaction in the country.

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