New monetary policy focuses on deprived class

New monetary policy focuses on deprived class
eKantipur.com, 23-Jul-2007

Apart from a renewed attention on channeling urban-based resources to rural-based deprived class, the monetary policy for the fiscal year 2007/08 that Nepal Rastra Bank (NRB) made public on Sunday, announced no remarkable policy changes.

The monetary policy focusing mainly on managing high liquidity and maintaining fiscal stability, vowed to limit the inflation rate at 5.5 percent and achieve surplus balance of payment of at least eight billion rupees during the running fiscal year.

In order to bolster institutional investments to the disadvantageous sectors, the policy has raised single borrower limit for microfinance institutions to Rs 60,000 for individuals and Rs 150,000 for micro enterprises. Microfinance institutions that raise their paid-up capital by Rs 2.5 million, will be allowed to extend services to one adjoined district, the policy stated.

Similarly, now onwards commercial banks are required to extend 3 percent of their total loan investments for deprived sector. The policy has been extended to development banks and finance companies as well. "There will be no need of 20 percent additional loan loss provision on the loans extended to the deprived sector," according to the policy.

With an aim to boost investment in major infrastructure projects, the policy has raised the existing single borrowing limit to 25 percent of the primary capital while extending loans to sectors that require huge investments like hydropower.

The new policy has announced to slash export refinance on Nepali currency by one percentage point to 2.5 percent but a cap on lending interest rate of five percent has been set for commercial banks extending such loans.

The central bank has also announced to extend concessionary refinance at 2.5 percent to support the revival of cottage and small scale industries, but the retail interest rate of such loans should be less than 5.5 percent.

The central bank continued the policy of extending loans to sick industries at a concessionary rate of 1.5 percent. However, the policy has made it clear that commercial banks dealing with such loans are not allowed to charge an interest rate if more than 4.5 percent.

Likewise, in order to check possible misuse of short-term loans being provided to development banks and finance companies by commercial banks, the NRB has raised penal interest on such loans.

The monetary policy has also lowered the service charge that the commercial banks have to pay to the central bank while exchanging foreign currency to one percent from two percent.

"The rate of commission that banks charge to the customer while buying convertible currencies will come down by the same level," stated the policy.

Similarly, the policy has also vowed to continue strong actions against willful defaulters and said, "Necessary procedures would be initiated in coordination with the government to take action as per the existing rules against the big borrowers who have defaulted by more than Rs 10 million."

The policy estimates that the board money supply will remain at 15.6 percent against the estimated 15 percent recorded last year. Internal loan is expected to grow by 17.1 percent and the total loan investment from banking sector to private sector is likely to increase by 18.5 percent during the current fiscal year.