Maha Prasad Adhikari, Governor of Nepal Rastra Bank (NRB) presented the monetary policy for the fiscal year July 17, 2020. The policy targeted an annual economic growth rate of 7 % keeping the consumer price inflation rate no higher than 7 %. The monetary policy aims to address the economic effects of COVID-19 and provide relief to various sectors affected by the pandemic.
The monetary policy has said that in view of the economic impact caused by the COVID-19 pandemic, liquidity will be eased and credit balance will be shifted.
The major Highlights are as follows:
- Economic Growth rate : 7 %
- Consumer inflation : no higher than 7%
- Repo Rate reduced 3% (3.5% last year)
- Long-term Repo service to be made available to improve much-needed liquidity for financial rehabilitation.
- Mandatory Cash ratio 3% to be maintained by BFIs
- Statutory Liquidity Ratio : 10-8-7%
- Commercial Banks : 10%
- Development Banks: 8%
- Finance Companies: 7%
- The lender of last resort rate : 5%.
- Commercial banks to issue
- at least 15% of their loans in the agriculture sector by 2080 Ashadh end.
- 10% to the energy sector of total loans by 2081 Ashadh end.
- Commercial Banks experienced in the energy sector will be allowed to issue Energy Bonds.
- Commercial Banks can issue energy bond refinancing loan facility for SMEs at 2%
- Credit to core capital plus deposit (CCD) Ratio has been increased from 80% to 85%.
- It means banks can issue more loans and advances against deposits as 5% lesser is required to be set aside as a reserve to maintain liquidity.
- Agriculture Development Bank will be established as a “Lead Bank” in the agriculture sector. It can also issue Agriculture Bonds to ensure long-term availability of resources.
- Inter-bank transactions of Agriculture Credit Swaps will be further simplified.
- The distribution of cash dividend for BFIs with net profit less than 5% will be forbidden.
- In case of BFIs with a net profit higher than 5% of their paid-up capital will be allowed to distribute 30% of dividends as cash dividend in maximum.
- However, companies that fulfills the 5% requirement still can’t distribute cash dividend that amounts to a larger sum than their Deposit Weighted Average maintained in Ashadh 2077.
- No licenses to be issued for new finance companies because the microfinance sector in Nepal is already saturated. Also, any microfinance license under the process of issuance will be discarded.
- No charging fees on interbank ATM withdrawal
- Provisions for merger and acquisition of BFIs