Subin Mishra,The Himalayn Times, 9 July 2017
Nepal Rastra Bank has directed commercial banks to increase the flow of credit to the ‘productive’ sector by five percentage points to 25 per cent of their total lending.
Unveiling the monetary policy for fiscal 2017-18 here today, the central bank prioritised lending to the ‘productive’ sector, which encompasses hydropower, agriculture, tourism, export, small and medium industries, pharmaceuticals, cement and garments.
The central bank has directed class ‘A’ financial institutions to extend 10 per cent of their total credit to agriculture, five per cent to tourism, five per cent to hydro-power and the remaining five per cent to other productive sectors. This is the first time the monetary policy has determined credit extension for tourism sector.
As per the new monetary policy, development banks are also required to extend minimum 15 per cent of their total lending to the productive sector, while the requirement for finance companies has been set at 10 per cent.
Considering the complaint of micro-finance institutions that they were not allowed to directly lend to the deprived sector, ‘commercial banks would not be required to ensure two per cent of their total lending to the deprived sector directly’, Governor of NRB Chiranjibi Nepal announced.
The monetary policy has also doubled the refinance fund to Rs 20 billion. Of this amount, up to Rs 5 billion can be extended as refinancing facility to the hydro-power sector. NRB has aimed at limiting inflation to seven per cent, in line with the target announced by the government through the budget for 2017-18.
“Domestic borrowing will be increased by 27.8 per cent and lending to the private sector will be raised by 20 per cent,” Nepal informed.
The central bank has also adopted a policy that has discouraged corporate deposits in banks and financial institutions. The ratio of institutional deposits should be brought down by five percentage points to 45 per cent within the next fiscal.
NRB has fixed the policy rate of three per cent under the interest rate corridor. “This will help minimise the unstable interest rate market,” said Governor Nepal.
Moreover, the central bank has allowed hotels to provide exchange facility of up to $300 to their clients on top of the bill amount raised by the hotels.
Account payee cheques have been made compulsory on transactions of more than Rs 1 million from July 16. BFIs can lend up to 40 per cent of their core capital in the form of margin lending. They can flow credit of only up to 10 per cent on shares of a single company.