Recently the new monetary policy for the fiscal year 2074/75 BS was announced by the Nepal Rastra Bank. Every year, following the announcement of the budget, the monetary policy gets announced in order to fulfill the provisions relating to the financial sector as specified in the budget.
- For the fiscal year 2074/75, the monetary policy aims to set the inflation target of 7 percent.
- It aims to maintain the FOREX reserve to a level that should easily support the imports for 8 months’ time period.
- Manage the liquidity to achieve the economic growth rate of 7.2 percent for the fiscal year 2074/75.
- For the fiscal year 2074/75, the monetary policy aims to increase the money supply at maximum growth rate of 18 percent.
- Total domestic loan is expected to grow at a rate of 27.8 percent for this fiscal period.
Instruments and policies
- The Monetary Policy also aims to manage the interest rate corridor in relation to the current market scenario.
- Previously, using collateral, the short term liquidity could be obtained for a maximum of 5 days. This has now been changed to 7 days. And with regards to the value of the loan, a maximum of 90 percent of the value of the collateral can be issued.
- For hydropower projects, loans have been made available at a concessional rate by the NRB.
- The NRB has selected the following sectors to be included in the priority sector: hydropower, tourism, agriculture, export, cottage and small industry, pharmaceuticals, cement and garment industry.
- The NRB has directed the commercial banks to provide loan facilities to certain sectors by the end of the fiscal year. According to this, 10 percent of loans is to be provided to the agricultural sector, 5 percent to hydro power, 5 percent to tourism and 5 percent to the rest of the priority sectors.
- The NRB also directs the commercial banks to provide at least 5 percent and the development banks to provide at least 4.5 percent, and the rest of the financial institutions to provide at least 4 percent of their loan portfolio to the underprivileged groups.
- BASEL-III framework and regulation is to be implemented to the BFIs.
- 45 percent of the total deposits in the commercial banks are required to be contributed by the institutional depositors.
- In the previous fiscal year, loan amount to be offered to the specified sectors could be reduced by up to 50 percent. This provision has now been removed for this fiscal year. And it is now compulsory to meet the loan offering requirement as set by the NRB.
- Previously the margin lending was limited up to 50%, it has now been reduced to 40%.
- Previously, the BFIs could offer housing loans to up to NPR 1 crore, this has now been increased to NPR 1.5 crore.
- For Kathmandu valley, the LTV ratio (loan to value ratio) for real estate for the previous year was 50 percent which has now been reduced to 40 percent. For other regions, the LTV ratio is unchanged at 50 percent.
- For auto loans, previously, 50 percent of the value of the vehicle was finance by the BFIs, this limit has now been raised to 65 percent of the vehicle’s value.
- Previously the facility of co-financing was made available to micro finance, this has now been removed.
Supervision and Policy
- In the case where BFI’s have failed to achieve the capital requirement set by the NRB, these entities are not allowed to hand out cash dividends, not allowed to issue bonus share and expansion of their new branches. Further to this, a limit will be set on deposit collection and credits flows and these institutions will be directed for a merger.
- In those rural areas where not every Nepali citizen have a bank account, for every 2500 accounts opened by these individuals, the BFIs will receive an interest free loan of NPR 1 crore for the fiscal year 2074/75 from the NRB.
- For every local state out 744 as stated according to federal structure of Nepal government where there is not branch of bank, it is mandatory for concerned bank to open branch.
- Provision has been made for “KHA” and “GA” licensed bank based on their paid up capital, to operate in their area as per federal structure not as per district structure.
- With regards to the overdraft services and working capital of BFIs, a separate mandate will be issued.
- From 1st of Shrawan 2074 onwards, payment more than NPR 10 lakh should compulsorily be in in the form of account payee cheque.
Policies regarding foreign exchange
- For foreign customers staying in hotels, a provision for exchanging USD 300 in the hotel is being made.
- Except for medical reasons, when travelling to India for any other reason, a provision for exchanging more that IC 50 thousand through banks or though cards have been made.
- A Nepali citizen, firm or an institution which wishes to issue a loan from foreign banks or individuals were previously eligible for a loan of USD 200,000. This has now been increased to USD 500,000. And in case of loan from India, a loan of up to IC 5 crore can be issued.
- Licensed banks are allowed to invest in FOREX for a maximum of 2 years; however, if they are investing in government securities, they can make an investment for a maximum of 5 years.
- For infrastructure development projects, in case of a shortage of working expenses, a provision for short term advances have been prepared.
- Focusing on the foreign investors, in the case where all the document requirements are fully met, in the case where the firm is distributing the dividends of up to NPR 10 crore, then these foreign investors can take their proportion of their dividends through commercial banks.
- When importing aircraft, medial and telecommunication parts, if the seller sends the goods of up to USD 10,000 in credit, and if it meets all the regulation of the customs, then the payments can be made within 90 days.