KATHMANDU: Governor of Nepal Rastra Bank (NRB) Maha Prasad Adhikari, on Friday, unveiled the monetary policy for the fiscal year 2081/82 (2024/25).
The NRB has removed the upper limit on share collateral loans for institutional investors.
Governor Adhikari revealed this change during the announcement of the policy.
Previously, a cap of Rs. 20 crore was in place due to the ineffectiveness of margin trading among institutional investors, but this restriction has now been lifted.
Nonetheless, the central bank has maintained this limit for individual investors.
The monetary policy notes, “To gradually lessen direct lending by banks and financial institutions in the securities market and encourage the practice of margin trading, Nepal Rastra Bank has approved 34 securities broker companies.”
“Given the current ineffectiveness of margin trading, the previous maximum limit of Rs. 20 crores on margin-type share collateral loans provided by banks and financial institutions to institutional investors will be removed,” it added.
Additionally, NRB has reduced the provisioning requirement for performing loans from 1.20 percent to 1.10 percent. This cut in provisioning is anticipated to boost the profitability of banks.
The policy has also emphasized the merger of microfinance institutions. According to NRB, mergers and acquisitions between microfinance financial institutions are a key focus.
In response to issues with microfinance institutions, NRB has highlighted the importance of customer protection in line with international best practices.
The policy incorporates regulatory measures to safeguard customer interests and address grievances related to microfinance services.
It also discusses a modern review of the regulatory framework concerning interest rates and service charges imposed by microfinance institutions, which are currently allowed to charge a maximum interest rate of 15 percent on loans.
Provisions will be made to enable microfinance customers, who are unable to repay loans due to unforeseen circumstances, to restructure their loans by paying a specified percentage of the interest.
Furthermore, the central bank has lowered the policy rates. The policy rate has been decreased from 5.5 percent to 5 percent, and another key policy rate has been reduced from 7.5 percent to 7 percent.
The lower limit deposit collection rate remains unchanged.
NRB has also increased the target for credit expansion to 12.5 percent for the current fiscal year, up from 11.5 percent in the previous year.
The objectives of this monetary policy are to tackle challenges in the capital market and to foster financial stability and growth within the banking sector, according to Governor Adhikari.
For the fiscal year 2081/82 BS, NRB’s monetary policy includes measures to alleviate the risk burden associated with real estate, high-value vehicles, and share mortgages up to Rs 5 million, and to ease the loan loss system for performing loans.
Additionally, NRB will avoid blacklisting institutions funded by private equity and venture capital, even if their investments encounter issues, in an effort to promote investment and offer greater security.
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