Kathmandu. The Nepal Rastra Bank (NRB) has started adopting the ‘credit-push’ method as there is a problem in liquidity mobilization in the banking sector.
Through the first quarterly review of the monetary policy, the ‘credit-push’ mode has been activated with the objective of reviving the credit flow. The review seems to have added to the easing of the credit infrastructure to break the situation that has led to the stagnation of the credit market due to the sluggish economy, post-movement uncertainty and the risk appetite of the businessmen.
The review has doubled the limit of personal overdraft loan from Rs 50 lakh to Rs 1 crore. Similarly, the maximum limit for loan issued through microfinance has been increased from Rs 7 lakh to Rs 15 lakh.
According to experts, these arrangements will help revive the demand for credit by making it easier for small entrepreneurs, service professionals and middle-class consumers to access credit immediately. They say that such facilitation is necessary to mobilize the investable money that has accumulated in the banking system in the real sector.
Another important aspect of the review is the adjustment made to the interest rate corridor. The permanent liquidity rate has been reduced from 6 percent to 5.75 percent and the policy rate has been reduced from 4.50 percent to 4.25 percent. However, the lower limit of the interest rate corridor has remained unchanged at 2.75 percent.
According to experts, the decision not to touch the lower limit will help balance the interest rate structure without hurting savers. Because the lower limit would have weakened the attractiveness of savings in the market. Thus, adjusting only the upper part of the corridor is considered a comparatively easy step for both the bank and the borrower.
The review has also opened the facility of debt restructuring-rescheduling to facilitate the enterprises and businesses in areas affected by natural disasters such as Ilam and other affected districts. It is analysed that if banks can restructure loans for a one-time period with a minimum interest rate of 10 percent, such businesses will have the opportunity to restart and the risk of the bank will also be reduced. This is expected to have a positive impact on loan psychology and boost confidence in new loan disbursement.
This time, the central bank has also ended the interest rate discrimination between institutional and individual fixed deposits. Earlier, the interest rate on institutional fixed deposits should be kept at least 1 percent lower than that of individual deposits. After this, banks will be able to determine both types of deposits from the same situation. According to experts, this will not only increase the flexibility of deposit management, but also balance the cost structure of the loan and ultimately affect the lending rate.
In view of the situation where the cost of banks has increased due to excessive branch expansion in the metropolitan area, the provision of branch integration and consolidation is also considered important. This is expected to encourage the bank to expand digital services and cut costs.
The review also indicated that transparency and good governance in the loan process would be further strengthened, stating that preparations have been made to implement anti-corruption and anti-corruption policies. According to experts, loan disbursement will become easier once the informal influence on the loan process decreases.
However, experts say that even if there is policy easement, the real impact of credit expansion will depend on political stability and confidence in the investment climate. Although the banks have ample liquidity and policy openness, the demand for credit is suppressed due to weak investment psychology of the private sector. They say that reliable coordination between the government, private sector and banks is necessary to improve this.
