- Refinancing rate 5 percent
- Special refinancing rate 1.5 percent
- 12 percent loan for agriculture and energy must
- 20 percent loan for productive sector must
KATHMANDU, July 22: With the aim of ensuring adequate credit flow to productive sectors, increasing access to banking services and encouraging lending to deprived sectors, the Nepal Rastra Bank (NRB) on Sunday unveiled monetary policy for the fiscal year 2013/14. [break]
The 30-page policy document is aimed at containing inflation at 8 percent and achieving economic growth of Rs 5.5 percent in line with the target set by the budget.
“We have formulated a flexible monetary policy, which will help achieve high economic growth by giving priority to agriculture, energy and industries for loan disbursement,” said Governor of NRB Dr Yuba Raj Khatiwada.
“We have equally prioritized increasing access of the people of rural and remote areas to banking services besides giving priority to increasing financial literacy among the people,” said Khatiwada. The central monetary authority has also projected that the total domestic lending would go up by 17.1 percent with 12.3 percent and 18 percent rise in the credit flow to the government and private sector, respectively.
NRB has slashed the Capital Reserve Ratio (CRR) -- an amount that the bank and financial institutions mandatorily have to hold in cash -- by one percentage point to 5 percent for commercial banks, 4.5 percent for development banks and 4 percent for finance companies. NRB expects reduction on CRR to ease frequent liquidity problem in the banking system.
The policy has also shortened the repo and reverse repo process from 28 days to 21 days. In an effort to make bank interest rates more transparent, the monetary policy has announced to expand the base-rate -- a benchmark interest rate-- which is limited to only commercial banks, for other BFIs.
The policy has also liberalized refinancing rates.
“We have reduced refinancing interest rates for BFIs from 6 percent to 5 percent allowing them to charge a maximum of 9 percent interest on loans issued for agriculture, hydropower, livestock, and fisheries as well as other designated productive sectors,” Khatiwada added.
Similarly, NRB has reduced the special refinancing rate from 1.5 percent to one percent to ensure that BFIs do not charge 4.5 percent interest from sick industries, cottage and small firms run by women and other designated groups.
Amid complains about weak implementation of policy on increasing the access of deprived groups to banking services, the monetary policy has made it mandatory to increase loan disbursement to such groups to 4.5 percent of total loan portfolio for commercial banks, 4 percent for development banks and 3.5 percent for finance companies. Earlier, the loan disbursement to deprived groups was 4 percent, 3.5 percent and 3 percent for commercial banks, development banks and finance companies, respectively.
NRB has also made it mandatory for commercial banks to increase the loan limit for agriculture and energy sectors to least 12 percent of total loan investment. The limit for investment in these sectors was 10 percent. Until mid-January, commercial banks had extended loan amounting to 13.7 percent of total investment to these sectors.
The central bank has continued its policy of making it mandatory for commercial banks to invest at least 20 percent of their loan portfolio in productive sectors.
The policy has also made it mandatory for BFIs to increase their paid up capital by mid-July 2014.
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