NRB issues Unified Directives with various provisions

KATHMANDU: Nepal Rastra Bank (NRB) has issued the Unified Directives today, amending the Unified Directives-2079 BS.

As per the amended Unified Directive, the provision of a ‘counter-cyclical buffer’ has been re-implemented. It was suspended since Fiscal Year 2076/77 due to the COVID-19 pandemic.

The central bank has brought this provision for managing the capital fund adequacy of banks.

Accordingly, the development banks and commercial banks except the national level ones will have to implement the provisions related to countercyclical buffers in accordance with the Capital Adequacy Framework, 2015.

The counter-cyclical buffer rate is determined on the basis of the difference between Gross Domestic Production (GDP) and the net loan flow.

According to NRB, the counter-cyclical buffer checks the unrestrained loan outflow, and this provision is made to manage the possible crisis in the banks and financial institutions.

The Basel Committee on Banking Supervision issued a document titled ‘Basel-3: A Global Regulatory Framework for More Resilient Banks and Banking System’, in December 2010, through which it brought this provision to protect the financial institutions from financial risk and to reflect their actual representation in the economy.

NRB too has been issuing directives to the banks and the financial institutions at various times for the implementation of the Basel-3 provision.

PAN made mandatory for loans exceeding Rs 2.5 million

A provision has been made in which the Permanent Account Number (PAN) should have been taken if the banks and financial institutions have to issue a loan of Rs 2.5 million or exceed that amount on a lump sum basis or separately.

Before this, PAN was mandatory for issuing loans of Rs 5 million or above. The borrower should mandatorily produce PAN for this purpose, it is stated.
The lowest limit of the interest rate corridor is set at 4.5 percent.

Similarly, the Unified Directive has lowered the deposit collection rate remaining as the lowest threshold of the interest rate corridor of the banks by one point and set it at 4.5 percent.

Similarly, the repo rate has also decreased by 0.50 percentage points.