NRB focuses deprived class in new monetary policy

Nepal Rastra bank (NRB) on Sunday announced the monetary policy for the fiscal year 2007/08, focusing urban-based resources to rural-based deprived class.

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 Rs 8 billion during the running fiscal year.

The policy has projected the gross domestic product (GDP) to grow by 4.5 to five per cent during the fiscal year.

However, NRB has stated that the set growth rate is achievable only if weather favoured agricultural production and political stability prevailed in the country.

According to the policy, in order to support 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.

Under new policy of NRB, 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," stated the policy.

Similarly, in order 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 central bank has 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 new policy has also 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.

NRB’s current rate of two per cent service charge that the commercial banks have to while exchanging foreign currency has been lowered it to one per cent. "The rate of commission that banks charge to the customer while buying convertible currencies will come down by the same level," stated the policy.

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.

Traders now onwards can import raw materials and intermediate products from India against payment of US dollar. It has also made an arrangement of the exchange facility of $5,000 per individual directly through bank or financial institution for those going abroad under immigrant visa.

Similarly, the policy has also vowed to continue strong actions against willful defaulters. "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," said the policy.

According to the policy estimation, 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.