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KATHMANDU, July 3. Nepal Rastra Bank has prepared a draft monetary policy to “keep the market energized” in case of economic slowdown. Rashtra Bank Governor Mahaprasad Adhikari apprised Finance Minister Bishnu Poudel on Thursday about the final preparations of the upcoming monetary policy.
The official met Finance Minister Paudel for a briefing at 1 pm on Thursday after the discussion on monetary policy at the Rashtra Bank Management Committee meeting.
The governor’s officials came to meet the minister at 1pm on Thursday. It was resolved after a brief discussion,” said a source in the finance ministry.
Governor Adhikari also scheduled a meeting of the Rashtra Bank board of directors for Friday at 8 a.m. Sources said the 8 a.m. board meeting had monetary policy and other agenda items.
If the discussion is concluded at the meeting on Friday morning, the monetary policy will be announced in the afternoon. If the discussion is not completed, another meeting will be held after 1 pm but preparations are being made to announce the monetary policy by the evening,” said a source at Rashtra Bank.
Sources said the discussion in the management committee is nearing completion and some changes may be made in the current draft after discussions with department heads.
“The focus of monetary policy is to make economic activities sustainable. The purpose of monetary policy is to make necessary changes in regulatory policies that constrain monetary policy,” said a source at the RBI.
RBI officials said monetary policy cannot be the solution for everyone as people expect a lot from it.
However, RBI officials said the focus of monetary policy will be on addressing the problems of the private sector and bankers.
“The governor has said monetary policy will be accommodative,” said a senior source at the National Bank. Banks facing recovery pressure are facing profit pressure due to insufficient loan expansion. In this situation, what is needed now is a policy that makes the market work.
Although there are not many places where monetary tools are used, regulatory policies should also be flexible to create an environment for monetary tools to work, and monetary policy will aim at this.
He said that while the governor’s plans would not be known until tomorrow’s discussion, the focus of monetary policy should be to keep regulatory policy flexible to keep markets functioning.
Central bank officials involved in the monetary policy discussions also said monetary policy will largely be in line with the expectations of the private sector and bankers.
Can the governor be accused of serving political interests? In response to this question, the commissioner said, “It is time to formulate monetary policy according to circumstances.” Adopting maximum flexibility in monetary tools and implementing it also focuses on making regulatory policies flexible as needed.
Sources said many of the issues raised by the private sector and bankers came from the Department of Banking and Financial Institutions Supervision’s revision of regulatory policies, which the Governing Council was largely positive about.
The annual turnover limit for working capital loan guidance has been saying that there will be problems with lending when business in the private sector is declining, and the National Bank has been saying that it should be flexible. Sources said the National Bank is positive about this.
In particular, the ratio of loans under the working capital loan guidelines to the annual transaction limit, if there are investment loans that exceed the loan amount before the implementation of the guidelines, the loans exceeding the limit must be fully repaid before June 2082. Add some time to the schedule, and the private sector, bankers have also been asking for it.
Similarly, bankers and the private sector have been demanding a rethink on the working capital loan guidelines, which set a system whereby the seven-day default of more than 30% of the total loan amount in the first year, less than 20% in the second year, and less than 10% in the third year.
Even in discussions between the governor and the finance minister last Tuesday night, there was agreement to adopt some flexibility in the working capital loan guidelines, sources said.
While monetary policy is used flexibly, it will also focus on creating a foundation for banks to expand their business.
“The monetary policy will send the signal. Efforts are also needed from the private sector and the government,” said a source at Rashtra Bank. “There are some issues with the health of banks and financial institutions. The government and the central bank should work together to resolve this.” Regulators have also discussed changes in the way banks’ outstanding interest is calculated in regulatory reserves and capital.
The official also said that rules on bank asset classification may also be revised.
Currently, loans that are not overdue or overdue for 1 month are classified as good, loans overdue for 1 to 3 months are closely monitored and overdue loans are classified as inactive. Even among bad loans, loans overdue for 3 to 6 months are classified as NPLs, loans overdue for 6 to 1 year are doubtful and loans overdue for more than 1 year are classified as NPLs. Even if the debtor has paid the outstanding amount in loans classified under this category, only after the payment of regular repayments or interest for 6 consecutive months, can the provisions be written back by classifying such loans in the good category. Bankers have been demanding a review of the current challenging situation and that provisions cannot be written back even in the face of bad financial statements of banks. Sources said that there are active discussions on this as well.
The central bank is ready to review the risk weights of some loans as needed to create conditions for banks to provide loans to the market. Bankers said that reducing the risk burden of 125% for mortgage loans of more than 5 million shares and reducing the risk burden of import loans such as trust receipts can also form the basis for some credit investments.
Similarly, sources also said that the approval limit for individual mortgage loans is likely to be Rs 15 crore and the limit for institutional loans is Rs 20 crore.
It is said that the dividend distribution limit of microfinance is 15% and there is a possibility of modification.
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