NRB introduces new provision on interest rate; regulatory retail portfolio to come online from mid-March

Published On: February 23, 2024 08:00 AM NPT By: Republica | @RepublicaNepal

KATHMANDU, Feb 23: Nepal Rastra Bank (NRB) has asked the banks and financial institutions (BFIs) to maintain the difference between the interest rates on institutional deposit and individual deposit by at least one percent effective from March 14.

Revising the unified directive on Thursday, the central bank enforced the provision that it had introduced through the mid-term review of the monetary policy 2023/24. As of now, the gap in the interest rates of fixed deposits by institutions and individuals has been maintained at two percent minimum.

According to bankers, the BFIs will be reducing their interest rates on deposits further along with the NRB’s new circular. At a time when banks have been flushed with excess liquidity, they have brought down their interest rates to single digit ,citing the need to reduce their costs.

Likewise, the NRB is also enforcing the 'Regulatory Retail Portfolio' for agricultural, small, cottage and medium-scale enterprises from the commencement of the new Nepali month (mid-March). In the revised provision, loans up to Rs 20 million provided to the firms under these categories will be allowed to be counted in the 'Regulatory Retail Portfolio'.

As of now, the threshold under the heading was maintained at just Rs 10 million. The new provision is expected to help the BFIs to manage their mandatory capital adequacy fund enforced by the central bank.

According to bankers, the lending capacity of the BFIs despite having excessive liquidity at present has been affected as they have been struggling to maintain the mandatory capital adequacy ratio mandated by the NRB. The central bank has asked the BFIs to maintain a minimum of 11.5 percent of their risk weighted assets in the capital adequacy fund.

In the new provision, the credit considered under the regulatory retail portfolio carries only 75 percent of the risk weightage, which could help reduce the pressure on the capital adequacy fund. Bankers have been demanding the central bank increase the threshold of the regulatory retail portfolio to Rs 30 million.