Kathmandu. It is expected that the pressure on the banking system will ease and the loan flow will be accelerated with the implementation of the provisions mentioned in the Monetary Policy of the current fiscal year by the Nepal Rastra Bank.
The amended Integrated Directive, 2081 has significantly eased the provisions related to loan classification, restructuring, collateral management and loan repayment income ratio (DSR). However, the question remains whether policy flexibility alone will lift the morale of the private sector.
According to experts, in the current situation, the economy will not be strengthened only if the central bank makes the monetary policy flexible. They argue that the abundance of liquidity in the banking system, low interest rates and easing of loan flow rules are positive signs, but this alone is not enough to make the overall economy dynamic. They said that the main reason for the weak morale of the private sector is the contraction of demand and the sluggishness of government activities.
Experts say that there is no flow of money in the economy, especially when the government’s capital expenditure is low. According to them, although the money flowing into the market from development, construction, infrastructure contracts and public projects creates work, income and investment environment for the private sector, the implementation of the budget limited to current expenditure has not helped accelerate the economy. An environment has not been created for the private sector to take loan and invest due to lack of timely and effective capital expenditure.
Meanwhile, according to the new policy of the Rastra Bank, the provision of keeping short-term working capital loans that have not been converted into co-financing and which have been contracted has been removed from the watch list. This is expected to reduce the immediate provision pressure on banks and financial institutions. Also, the provision of keeping the regular loans in the bad category after the start of the auction process will have a positive impact on the profitability of the banks.
Earlier, banks had become cautious about the flow of loans due to the compulsion to classify the loans that were filed in the court or were in the auction process. Bankers believe that the new system will provide relief to the loans that can be revived. Due to this, the profitability of banks is expected to improve in the coming quarters.
The central bank has also adopted flexibility in installment loans. It is expected that the arrangement will make it easier for individual and small business borrowers to make arrangements for additional loan loss by changing the installment amount up to one time a year after analyzing the income and repayment capacity of the borrowers.
With the aim of increasing investment in the infrastructure sector, the NRB has further eased the rescheduling and restructuring of the projects of national priority such as hydropower, cable car, cement and star hotels. Such loans can be classified as good loans if certain conditions are fulfilled and only one percent loss system can be maintained, which is seen as a long-term investment-friendly step.
The Nepal Rastra Bank (NRB) has also brought clarity on the provision related to the management of collateral. The bank has to accept only the unsold collateral in the auction three times, evaluate it on the basis of market value and write down the expenses in case of loss in the same year. This is expected to increase discipline in non-banking asset management.
However, experts say that coordination between monetary and fiscal policy is inevitable. They conclude that although the NRB plays the role of facilitating credit flow and controlling risks, the responsibility of bringing real dynamism to the economy lies with the government. They are of the view that demand will be created in the market only after the increase in the government’s capital expenditure, the confidence of the private sector will be restored and the real impact of the flexible policy of the NRB will be seen.
