Nepal Rastra Bank unveiled its Monetary Policy for the fiscal 2018-19 today. It prioritises optimum credit mobilisation to the productive sector, stability of interest rates, financial inclusion and modernised payment system.
The Monetary Policy has given a target to commercial banks to narrow down the weighted interest rate spread, or the difference between lending and deposit rates, to 4.5 per cent by the end of the next fiscal. This is expected to encourage banks to be more efficient. The policy has envisioned 20 per cent credit growth for the private sector to achieve the growth target set by the government.
NRB has brought down the cash reserve ratio of class ‘A’, class ‘B’ and class ‘C’ financial institutions to four per cent for the next fiscal from six per cent, five per cent and four per cent in the ongoing fiscal. CRR is the fund that financial institutions have to deposit in the current account of the central bank. This provision will generate additional liquidity of Rs 48 billion in the financial system, which will help bring down the base rate of banks, and ultimately the lending rate, according to NRB Governor Chiranjibi Nepal.
The weighted average interest rate in deposit and loan was witnessed at 6.61 per cent and 12.42 per cent, respectively, in the first 11 months of this fiscal.
The Monetary Policy for the next fiscal has raised the lower ceiling and brought down the upper ceiling of the interest rate corridor that is executed in short-term interest rates, like interbank and repo rates. The lower floor of the interest rate corridor has been fixed at 3.5 per cent and upper floor at 6.5 per cent, and the interest rate in short-term monetary instruments will be hooked within the corridor.
Statutory liquidity ratio has been brought down to 10 per cent from 12 per cent for commercial banks, eight per cent from nine per cent for development banks, and seven per cent from eight per cent for finance companies. NRB has raised refinancing facility to Rs 35 billion from the existing Rs 25 billion to ensure concessional financing in priority sectors. Banks can borrow money from the central bank at four per cent and lend at up to nine per cent in general, and borrow at one per cent and lend at 4.5 per cent to export-based enterprises.
The central bank has raised the mandatory lending provision for commercial banks in the energy and tourism sectors to 15 per cent and given continuity to the mandatory lending provision in agriculture sector at 10 per cent of their total loan portfolio.
The Monetary Policy has introduced hedging facility for the foreign borrowing of commercial banks and also allowed them to borrow in Indian currency. Banks can borrow up to 25 per cent of their core capital in convertible foreign currency and Indian currency to lend to infrastructure and productive sectors defined by the central bank.
Moreover, a provision has been introduced barring banks and financial institutions from issuing margin call unless the value of shares plunges by more than 20 per cent. On the other hand, the margin lending facility (loan against the collateral of stock) will be 25 per cent of the value of the stock. Stock value is calculated as 180-day average price or current market value of the stock, whichever is lower.
The central bank has tried to encourage BFIs to issue bond/debentures to mobilise resources. They will be allowed to calculate resources collected from sale of bond/debenture in credit to core capital cum deposit ratio from the next fiscal. Banks can lend up to 80 per cent of their deposit plus core capital.