NRB urged to focus on addressing shortage of lendable fund, lower interest rates

Published On: June 15, 2019 03:30 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, June 15: Leaders of the private sector, including bank and financial institutions (BFIs), have urged Nepal Rastra Bank (NRB) to focus its upcoming monetary policy 2019/20 toward addressing the current shortage of lendable fund in the banking system

Speaking at a discussion program organized by Management Association of Nepal (MAN) on monetary policy, they have called for policy measures to ease the shortage of lendable funds and lower interest rates.

"The problem of liquidity shortage is likely to prolong. As the government has set a growth target of 8.5 percent for the upcoming fiscal year, there will be demands of more credits from the private sector. However, banks are still struggling to collect deposits. There could be more pressure on interest rates in the next fiscal year," said Gyanendra Prasad Dhungana, the president of Nepal Bankers Association (NBA).

“We do not want to have gentle agreement on capping interest rates again. The interest rates should be determined by market based on demand and supply,” he added.

He also said that the BFIs have not been able to float loans despite having liquidity crunch due to the core capital plus deposit (CCD) ratio—a prudential lending limit set by the central bank that restricts BFIs from floating loans not more than 80 percent of what they have on their deposit and core capital.

Dhungana also advised the central bank to offer relaxation on the calculation of the CCD so that they can have more funds to float as loans. He said that allowing BFIs to deduct loans floated on agriculture sector while calculating CCD ratio would make them comfortable to disburse more loans and ease pressure on the interest rates.

Also speaking at the discussion, Satish Kumar More, president of the Confederation of Nepalese Industries (CNI), said that the domestic financial resources were not adequate to achieve the double-digit growth rate target.

“We have to attract foreign investment and make it easier for the private sector to borrow from international market to meet the credit demand,” he said.

He said that the central bank, through the upcoming monetary policy, should fix the deposit rate for the institutional depositors in single digit. “Institutional depositors are not supposed to reap higher interest rates. They have to invest as per their objectives. The high interest rates provided to them are driving up borrowing cost,” said More. He also said that the refinance fund should be doubled.

The NRB has set up refinance fund from which BFIs provide loans to productive sector at concessional interest rates. The central bank has a refinance fund of Rs 35 billion. Due to the limited funds, borrowers have to remain in queue to get the concessional loans.

Saroj Kaji Tuladhar, president of Nepal Financial Institutions' Association, said that the CCD ratio calculation formula should be linked with Current Account Savings Account (CASA).

Likewise, Manoj Kumr Gyawali, general secretary of Development Bankers' Association Nepal, pointed out the growing credit and operational risks in the banking industry in recent time with the expansion drive.

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