With focus on addressing loanable funds crunch and credit growth in priority sector, the central bank has brought Monetary Policy for the fiscal year 2019-20, using all the possible monetary instruments.
Released by central bank governor Dr Chiranjibi Nepal today, the Monetary Policy includes a slew of measures to ease the existing shortage of loanable funds at banks and financial institutions (BFIs), lower interest rates and borrowing costs for private sector, though the private sector doubts the implementation of the policy and reduction of interest rates.
Through the Monetary Policy, the Nepal Rastra Bank (NRB) has lowered the general refinance rate to three per cent from current four per cent as part of the efforts to make loans cheaper for priority sectors. “With the general refinance funds to BFIs at 4 per cent, borrowers in priority sectors like manufacturing, tourism and energy will not be charged more than 7 per cent interest rate,” the governor said, adding that the central bank has but barred BFIs from levying more than 7 per cent interest rate to SMEs borrowers for such loans, compared to 10 per cent being levied at present.
The central bank – to address the liquidity issue – has also said that it will introduce provision to allow commercial banks to borrow in convertible currency from foreign institutions, including pension funds and hedge funds. The central bank has also allowed BFIs to collect fixed deposits in foreign currency from organisational foreign depositors and Non-Resident Nepalis (NRNs). However, such deposits should have maturity period of at least two years, and BFIs can disburse cent per cent of such deposits as loans in Nepali currency, the Monetary Policy reads, adding that the move of widening of the sources for external borrowings by the BFIs is expected to ease the crunch of loanble fund. “The new measures will also help lower interest rates apart from addressing the shortage of loanable funds.”
The Monetary Policy has reduced the refinance rate, tightened calculation of the interest rates spread formula – according to the Financial Sector Development Strategy (2016-17 to 2020-21) that envisions bringing the spread rate down to 4.4 per cent by fiscal year 2020-21 – and lowered the bank rate to help make borrowing cheaper, though the private sector is not very much excited about the reduction of interest rates as the central bank move will , according to them, not help reduce the interest rate.
The central bank has also barred BFIs from adding more than two per cent interest premium on their base rate while fixing the lending rate on loans up to Rs 1.5 million disbursed in agriculture, entrepreneurship and business promotion sectors. Moreover, the central bank has barred BFIs from taking any type of service charge from borrowers on such loans. More importantly, the central bank has also made it mandatory for BFIs to approve such loan demand within seven days of the submission of application from borrowers. The BFIs have now been barred from charging additional fees from customers while making transactions through Point of Sales (PoS) machines.
“The measures prescribed by the Monetary Policy is not adequate for making borrowing easier and cheaper,” the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said, adding that managing liquidity more efficiently and maintaining interest rate stability is key to private sector borrowing that can fuel economic growth.
The Monetary Policy has also made it mandatory for the commercial banks to float debentures, corporate bonds equivalent to 25 per cent of their paid-up capital by the end of fiscal year. The central bank – through the Monetary Policy – also claimed to introduce necessary mechanism to ensure the funds raised through corporate bonds will be used to disburse loans. The move, according to the central bank, is expected to diversify the source of liquidity for banks that rely largely on deposits to disburse loans. “The requirement of debentures, which tend to be of long-term nature will help address the loanable funds shortage,” the central bank adds. The mismatch in the assets and liabilities – as banks used to provide long-term loans from short-term deposits – has been blamed for shortage of loanable fund currently, leading banks to engage in an interest rate war that has fuelled interest rates.
Thus, the Monetary Policy has also tightened the spread rate and effectively implementing the interest rate corridor to address the problem of interest rate volatility.
Similarly, the central bank has projected that money supply growth to be limited to 18 per cent and private sector credit growth to 21 per cent in the current fiscal year. In the last fiscal year 2018-19, the central bank had projected 20 per cent private sector credit growth. “The Monetary Policy has also projected domestic credit growth at 24 per cent for the current fiscal year – against 22.5 per cent estimated in the last fiscal year – to achieve government’s ambitious growth target of 8.5 per cent for the fiscal year 2019-20,” the policy reads.
Speaking at the launching central bank governor Dr Chiranjibi Nepal said the expansion of credit to both government and the private sector could boost the availability of funds to invest in productive sectors. “The government will need to invest Rs 450 billion while the private sector needs to inject Rs 1.25 trillion in order to achieve the government’s targeted economic growth of 8.5 per cent,” he said, adding that the policy has made it mandatory for micro-finance firms to disburse one-third of their total loan in the agriculture sector to raise credit flow in the agriculture industry. “The NRB will fix the upper limit of Debt Service to Gross Income ratio in non-business loans including individual loans, home loans and hire-purchase loans being issued by BFIs.”
The NRB has also made PAN mandatory for seeking loans of above Rs 5 million from BFIs, from current above Rs 10 million, the policy reads, adding that the central bank is also introducing policies to facilitate citizens to keep gold in banks as deposits.
Similarly, the Monetary Policy 2019-20 has – in line with fiscal policy – targeted keeping inflation within six per cent and maintaining foreign exchange reserve (forex reserve) to sustain the prospective import of goods and services for seven months.
This time, however, the central bank has not revised the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) for BFIs, though they are also key monetary tools to ease the banks’ liquidity position, though the bankers have suggested the central bank to revise the CRR downwards. Likewise, the policy is also silent when it comes to revising the threshold in the credit to core capital-cum-deposit (CCD) ratio, which bankers have been pressuring the central bank to address through the monetary policy.
Currently, the CCD ratio imposed for banks and financial institutions stands at 80 per cent, which means a bank cannot extend more than 80 per cent of its deposit and core capital as loans.
Highlights:
• Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) left unchanged
• Average annual inflation to be contained at 6 percent
• Banks required to issue debentures equivalent to 25 per cent of paid-up capital
• Policy to be made for BFIs to open branches abroad
• Maximum limit for debt service to gross income ratio to be fixed for home loans, hire purchase
• Policy to be made for foreign currency payments for social media ads
• BFIs barred from selling bankassurance
• Gold can be parked in banks as deposits
Released by central bank governor Dr Chiranjibi Nepal today, the Monetary Policy includes a slew of measures to ease the existing shortage of loanable funds at banks and financial institutions (BFIs), lower interest rates and borrowing costs for private sector, though the private sector doubts the implementation of the policy and reduction of interest rates.
Through the Monetary Policy, the Nepal Rastra Bank (NRB) has lowered the general refinance rate to three per cent from current four per cent as part of the efforts to make loans cheaper for priority sectors. “With the general refinance funds to BFIs at 4 per cent, borrowers in priority sectors like manufacturing, tourism and energy will not be charged more than 7 per cent interest rate,” the governor said, adding that the central bank has but barred BFIs from levying more than 7 per cent interest rate to SMEs borrowers for such loans, compared to 10 per cent being levied at present.
The central bank – to address the liquidity issue – has also said that it will introduce provision to allow commercial banks to borrow in convertible currency from foreign institutions, including pension funds and hedge funds. The central bank has also allowed BFIs to collect fixed deposits in foreign currency from organisational foreign depositors and Non-Resident Nepalis (NRNs). However, such deposits should have maturity period of at least two years, and BFIs can disburse cent per cent of such deposits as loans in Nepali currency, the Monetary Policy reads, adding that the move of widening of the sources for external borrowings by the BFIs is expected to ease the crunch of loanble fund. “The new measures will also help lower interest rates apart from addressing the shortage of loanable funds.”
The Monetary Policy has reduced the refinance rate, tightened calculation of the interest rates spread formula – according to the Financial Sector Development Strategy (2016-17 to 2020-21) that envisions bringing the spread rate down to 4.4 per cent by fiscal year 2020-21 – and lowered the bank rate to help make borrowing cheaper, though the private sector is not very much excited about the reduction of interest rates as the central bank move will , according to them, not help reduce the interest rate.
The central bank has also barred BFIs from adding more than two per cent interest premium on their base rate while fixing the lending rate on loans up to Rs 1.5 million disbursed in agriculture, entrepreneurship and business promotion sectors. Moreover, the central bank has barred BFIs from taking any type of service charge from borrowers on such loans. More importantly, the central bank has also made it mandatory for BFIs to approve such loan demand within seven days of the submission of application from borrowers. The BFIs have now been barred from charging additional fees from customers while making transactions through Point of Sales (PoS) machines.
“The measures prescribed by the Monetary Policy is not adequate for making borrowing easier and cheaper,” the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said, adding that managing liquidity more efficiently and maintaining interest rate stability is key to private sector borrowing that can fuel economic growth.
The Monetary Policy has also made it mandatory for the commercial banks to float debentures, corporate bonds equivalent to 25 per cent of their paid-up capital by the end of fiscal year. The central bank – through the Monetary Policy – also claimed to introduce necessary mechanism to ensure the funds raised through corporate bonds will be used to disburse loans. The move, according to the central bank, is expected to diversify the source of liquidity for banks that rely largely on deposits to disburse loans. “The requirement of debentures, which tend to be of long-term nature will help address the loanable funds shortage,” the central bank adds. The mismatch in the assets and liabilities – as banks used to provide long-term loans from short-term deposits – has been blamed for shortage of loanable fund currently, leading banks to engage in an interest rate war that has fuelled interest rates.
Thus, the Monetary Policy has also tightened the spread rate and effectively implementing the interest rate corridor to address the problem of interest rate volatility.
Similarly, the central bank has projected that money supply growth to be limited to 18 per cent and private sector credit growth to 21 per cent in the current fiscal year. In the last fiscal year 2018-19, the central bank had projected 20 per cent private sector credit growth. “The Monetary Policy has also projected domestic credit growth at 24 per cent for the current fiscal year – against 22.5 per cent estimated in the last fiscal year – to achieve government’s ambitious growth target of 8.5 per cent for the fiscal year 2019-20,” the policy reads.
Speaking at the launching central bank governor Dr Chiranjibi Nepal said the expansion of credit to both government and the private sector could boost the availability of funds to invest in productive sectors. “The government will need to invest Rs 450 billion while the private sector needs to inject Rs 1.25 trillion in order to achieve the government’s targeted economic growth of 8.5 per cent,” he said, adding that the policy has made it mandatory for micro-finance firms to disburse one-third of their total loan in the agriculture sector to raise credit flow in the agriculture industry. “The NRB will fix the upper limit of Debt Service to Gross Income ratio in non-business loans including individual loans, home loans and hire-purchase loans being issued by BFIs.”
The NRB has also made PAN mandatory for seeking loans of above Rs 5 million from BFIs, from current above Rs 10 million, the policy reads, adding that the central bank is also introducing policies to facilitate citizens to keep gold in banks as deposits.
Similarly, the Monetary Policy 2019-20 has – in line with fiscal policy – targeted keeping inflation within six per cent and maintaining foreign exchange reserve (forex reserve) to sustain the prospective import of goods and services for seven months.
This time, however, the central bank has not revised the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) for BFIs, though they are also key monetary tools to ease the banks’ liquidity position, though the bankers have suggested the central bank to revise the CRR downwards. Likewise, the policy is also silent when it comes to revising the threshold in the credit to core capital-cum-deposit (CCD) ratio, which bankers have been pressuring the central bank to address through the monetary policy.
Currently, the CCD ratio imposed for banks and financial institutions stands at 80 per cent, which means a bank cannot extend more than 80 per cent of its deposit and core capital as loans.
Highlights:
• Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) left unchanged
• Average annual inflation to be contained at 6 percent
• Banks required to issue debentures equivalent to 25 per cent of paid-up capital
• Policy to be made for BFIs to open branches abroad
• Maximum limit for debt service to gross income ratio to be fixed for home loans, hire purchase
• Policy to be made for foreign currency payments for social media ads
• BFIs barred from selling bankassurance
• Gold can be parked in banks as deposits
No comments:
Post a Comment