Nepal Rastra Bank ( NRB ) description the monetary policy for the fiscal year 2012-13. The policy has laid high emphasis on increasing lending in the productive sector, financial inclusion and healthy financial system. It has also liberalised foreign exchange-related provisions.The policy hardly speaks of real estate and share market.
NRB Governor Dr Yuva Raj Khatiwada said CRR has now been raised to six percent for commercial banks, 5.5 percent for development banks and five percent for finance companies. Earlier, the CRR stood at five percent for all banks and finance companies.
Business community that failed to get fiscal incentives and priorities due to lack of full-fledged budget was hopeful of getting some respite from the Monetary Policy. But when Nepal Rastra Bank (NRB) launched the policy for 2012/13 on Wednesday the hopes turned out to be mere wishful thinking.
In a bid to support the productive sector, the Monetary Policy did reduce the refinancing rates for sectors like agriculture and hydropower to six percent from up to seven percent of the past.
The policy has also made it mandatory for banks and financial institutions to issue loans under the facility at rates of up to 9 percent - a move welcomed by the business fraternity.
“But we would have been happier had the central bank made it compulsory for the banks and financial institutions (BFIs) to actively channelize the facility to targeted industries,” said Pashupati Murarka, vice president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI).
NRB has been providing low-rate refinancing facility for last couple of years mainly to export-oriented industries, small and medium enterprises, and agro-processing, tourism and hydropower sectors. However, banks rarely make use of the facility as the existing Nepal Rastra Bank Act allows them to secure such facility for a span of only six months.
“The sectors for which the facility is announced seek long-term investment; hence the central bank´s offer appears hollow, as no entrepreneur expresses eagerness to acquire such loans for a period of only six months," said Rajan Singh Bhandari, vice president of Nepal Bankers´ Association.
While the bankers and business community continued with their long-running debate over the lack of use of the facility, NRB on Wednesday also announced a hike in cash reserve ratio (CRR) something which bankers called a “dampener” aimed at making credit expensive.
Governor Khatiwada also said the CRR was hiked to mop up part of excess liquidity in the banking system. But bankers said other measures should have been adopted to reduce money supply.
Credit growth stood at 14.1 percent in the first 11 months of last fiscal year ended July 15, despite the banking sector facing a liquidity surplus of around Rs 100 billion. This is same as that of previous year when the banking sector was facing liquidity crunch.
Bankers say demand for loan has fallen sharply because of slump in economic activities, but many entrepreneurs argue this is because of banks´ inability to reduce lending rates along with reduction in deposit rates.
As the Nepali banking system has an abundance of liquidity and foreign exchange reserve, the NRB has opened doors for commercial banks to invest up to 30 percent of their deposits in foreign banks, in call deposits, certificate of deposits and other instruments with low risks for two years. “As the Nepali financial system is also becoming part of a global financial hub, we have been flexible in this regard,” said the governor.
Likewise, the policy has raised the one-time ceiling of US $25,000 on payment settlement for goods imported from third countries against draft and telegraphic transfer to $30,000. Similarly, individuals and firms, who were earlier entitled to foreign exchange facility of up to $6,000 for various official purposes, can now fetch up to $10,000 from banks and financial institutions.