The Monetary
Policy for the current fiscal year 2013-14 is going to increase inflationary pressure
failing its own target of containing it at eight per cent as the government has
neither effective mechanism to crack whip on increasing market price nor the Policy brought today has any instrument to discipline it.
The central bank today brought flexible Monetary Policy for the
current fiscal year 2013-14 reducing cash reserve ratio (CRR) to five per cent for
commercial banks, 4.5 per cent for development banks four per cent for finance
companies that will add some Rs 15 billion liquidity in the market.
The November 4 election, increased salary of the government staffs recently and now the slashed CRR by one per cent, they all will definately contribute to push the inflation up to double digit.
Likewise, the reduction of statutory liquidity ratio (SLR) to 12 per cent for commercial banks, nine per cent for development banks and six per cent for finance companies and four per cent for micro-finance institutions will also help increase liquidity of the banks and financial institutions, which could also help pump more cash in the market.
The November 4 election, increased salary of the government staffs recently and now the slashed CRR by one per cent, they all will definately contribute to push the inflation up to double digit.
Likewise, the reduction of statutory liquidity ratio (SLR) to 12 per cent for commercial banks, nine per cent for development banks and six per cent for finance companies and four per cent for micro-finance institutions will also help increase liquidity of the banks and financial institutions, which could also help pump more cash in the market.
But the increased liquidity to propel growth at 5.5 per cent is going to neither contribute to the GDP nor
help contain inflation as the country has not been able to increase internal
production and largely dependent on imports.
However, the Monetary Policy has tried to channel lending to the productive sectors and increase financial access which will take a couple of years to bear the fruits. Commercial banks have to increase their lending to the productive sector to 20 per cent by the end of this fiscal year, while development banks and finance companies also have to submit their plan to invest a certain per cent of their lending to the productive sector within six months.
However, the Monetary Policy has tried to channel lending to the productive sectors and increase financial access which will take a couple of years to bear the fruits. Commercial banks have to increase their lending to the productive sector to 20 per cent by the end of this fiscal year, while development banks and finance companies also have to submit their plan to invest a certain per cent of their lending to the productive sector within six months.
The Monetary Policy has also increased the compulsory lending
requirement for commercial banks to energy and agriculture sectors to 12 per cent
within the current fiscal year from earlier provision of 10 per cent in line with the budget that has prioritised energy and agriculture.
The Policy has reduced interest rates of refinancing to nine per cent to the
productive sectors like agriculture, hydropower, poultry, livestock and fishery
to five per cent from earlier six per cent.
The interest rate of refinancing for sick industries, cottage
and small industries, export business, businesses operated by women and people marginalised
communities going for foreign employment has also been brought down to one per cent
from 1.5 per cent, the Policy said, adding that the banks and financial institutions could not charge more
than 4.5 per cent on re-lending of refinancing.
The Monetary Policy has, however, against the free market
operations, fixed the spread rate – the difference between deposit rates on lending rates – at five per cent as according to the central bank the banks and financial
institutions have been enjoying higher spread discouraging the borrowers. The fixation of the spread rate, the central bank expected, might bring the lending rate down
giving respite to the borrowers. But the general depositors might feel the heat as they will get less interest on their deposits.
“The Policy is expected to maintain financial stability, increase financial
access and benefit both depositors and borrowers,” the central bank governor Dr
Yuba Raj Khatiwada releasing the Monetary Policy 2013-14, here today.
“The Monetary Policy has been made flexible as it is necessary to
help attain high economic growth,” he said, adding that the government has targeted
5.5 per cent economic growth in the current fiscal year and the Policy seeks to
increase internal credit by 17.1 per cent, apart from maintaining 16 per cent
money supply to support the growth.
The Monetary Policy has key objectives of containing inflation,
supporting economic growth and maintaining financial stability. However, it seems
the Monetary Policy for the current fiscal year will fail to contain the inflation.
Number of Banks and Financial Institutions go
down, branches up
KATHMANDU: The number of banks and financial institutions and
micro-finance institutions has reduced due to merger in the last fiscal year.
By the end of the last fiscal, the number of commercial banks (Class A), development
banks (Class B), finance companies (Class C) and micro-finance companies (Class D)
decreased to 207 from last fiscal year’s 213. However, the number of branches
of commercial banks increased to 1,486 in the fiscal year 2012-13 from 1,425 a fiscal
year ago. The branches of development banks increased to 764 from a fiscal
year ago’s 687, whereas the branches of finance companies decreased to 242 from
292. But the branches of micro-finance institutions also increased to 634 from
550, according to the central bank that has revealed that a branch of banks and
financial institution is serving around 8,475 people. “There are 11.1 million
deposit accounts in commercial banks, development banks and finance companies,
whereas the number borrowers stood at 845,000.” By the fiscal year 2012-13, there
are 31 commercial banks, 86 development banks, 59 finance companies and 31
micro finance companies, the central bank added.
Key Highlights:
·
Spread rate fixed
at five per cent for commercial bank, 4.5 per cent for development banks and four
per cent for finance companies
·
Special refinancing
rate 1.5 per cent
·
Mandatory 12
per cent lending in agriculture and energy
·
Mandatory 20
per cent lending in productive sector
·
Interest
rate on refinancing to agriculture, hydropower reduced to five per cent
·
Deadline to
increase paid-up capital to Rs 2 billion extended by the end of this fiscal
year. Currently, the banks have been adding reserve capital also, according to
the central bank’s directives. But the Policy asked them not to calculate
reserve in the paid up capital. Bank of Kathmandu, Lumbini Bank, Everest Bank,
Kumari Bank, Laxmi bank, NCC Bank, Siddhartha Bank and Standard Chartered bank
Nepal have to increase their paid up capital by the end of the current fiscal
year.
·
Stress test mandatory
for finance companies too
·
Dynamic
provisioning to cushion market risk
·
PCA , if the
BFIs fail to maintain adequate liquidity. Currently, such an action is taken
only for BFIs’ failure to maintain capital adequacy ratio at the required
level.
·
Mandatory to
cut down institutional deposits’ share to less than 60 per cent to avoid over
dependency
·
A guideline
on acquisition on cards
·
The repo and
reverse repo process shortened to 21 days from 28 days
·
The
base-rate – which was limited to only commercial banks – is mandatory for all BFIs.
It is expected to make lending rates transparent
·
The deprived
sector lending has been increased to 4.5 per cent for banks, four per cent for development
bank and 3.5 per cent for finance companies of their total loans
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