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Monetary Policy 2078/79 (2021/22) Cheat Sheet by

Monetary Policy 2078/79 (2021/22)

Main Objectives

Covid Relief & Economic Recovery
Credit Growth Control
Promotion of Merger & Acquis­ition

Intern­ational Economic Status of 2021

Growth rate
6%
Developed economies growth
5.6%
China & India Economic growth
8.1% & 9.5%
Worldwide trade growth
9.7%
Petroleum price increment
56.6%
Public Expend­iture to GDP
97.3%

Status of Nepal 2077/78

Economic Growth
Economic growth rate
4.01%
Gross Domestic Savings to GDP
6.6%
Gross National Savings to GDP
31.4%
Gross Fixed Capital Formation to GDP
27.3%
Inflation
3.6%
Government Expend­iture
Rs. 1180.95B
Current
Rs. 851.68B
Capital
Rs. 228.30B
Financial Management
Rs. 100.97B
Revenue Collection by Govt.
Rs. 938.32 B
 
Foreign Trade, Remittance & BOP status
Export increment
44.4%
Import increment
28.7%
Trade deficit increment
27.3%
remittance increment
9.8% (total remittance Rs. 961.05 B)
 
Fina­ncial Sector
Deposit mobili­zation
Rs. 4662.73 B(21.4% increment)
Credit
Rs. 4084.81 B(27.3% increment)
Paid Up Capital
Rs. 390.43 B(10.8% increment)
CAR
(A: 14.1%, B: 13.2% & C: 22.0%)
NPL
(A: 1.5%, B: 1.5% & C: 6.2%)
 

Economic Scenario for 2078/79

Indi­cator
Esti­mat­ion­/Pr­oje­ction
Worldwide Inflation (Developed Economies)
2.1%
Worldwide Inflation (Emerging & Developing Economies)
4.7%
Worldwide Economic Growth
6.0% (2021) & 4.9% (2022)
Agro Sector Production Growth
Satisf­actory due to fav. climate, fertil­izers & increase in agri credit access
Economic Growth
Improve (Due to Vaccine availa­bility)
Inflation
Impact (due to increase in crude oil prices, & currency fluctu­ation
Balance of Payment
Impact (due to increased imports & reduced no. of Nepalese going for foreign employ­ment)
Foreign Exchange Reserves
Satisf­actory
Liquidity
Impact (due to increase in credit demand after economic revival)

Monetary Policy Review 2077/78

Indi­cat­ors
Target
Status
Broad Money Supply
18%
21.8%
Private Lending Growth
20%
26.3%
Interbank Rate
1%-5% corridor
4.14%
Liquidity Injection
NRs. 438.28 billion (Repo 67.94 billion & SLF 370.34 billion)
Liquidity Absorption
NRs. 303.29 bil.(R­everse Repo 109.54 billion, Deposit coll. Bid 193.75 billion)
91 days Avg. T-Bill rate
4.55%
 

Directions of Monetary Policy 2078/79

• Balanced Direction to match revival of economy through economic growth alongwith economic and financial stability.
• Continuity of current fixed exchange rate mechanism for overall price & foreign sector stability in monetary
manage­ment.
• Available financial resources to be targeted towards production increment, creating employ­ment, entrep­ren­eurship
develo­pment and sustai­nable & inclusive economic develo­pment.
• Liquidity management by stabil­izing interest rates through effective implem­ent­ation of interest rate corridor.
• Promotion and strengthen good governance of BFIs for financial sector develo­pment & stability. Financial interm­ediary
to be made strong and effective
• Cash transa­ction to be minimized by promoting electronic medium of payment.
• Promotion of financial access and financial inclusion through develo­pment of financial infras­tru­cture & financial literacy

Economic & Monetary Goals

Inflation within
6.5%
Foreign exchange reserves to sustain import of goods and services for
7 months
Broad money supply growth
18%
private sector lending growth
19%

Operating Goals and Instrument

CRR
3%
Bank Rate
5%
SLF Rate
5%
Deposit Collection Rate of IRC
2% (increase from 1%)
Repo Rate
3.5% (previ­ously 3%)
SLR
10%, 8% and 7% for A,B & C class

Provisions for Financial Sector for 2078/79

Source Mobili­zat­ion
“B” & “C” class and Wholesale Lending “D” class to issue debentures of 25% ofpaid up capital (like commercial banks)
Agri and Energy Bonds provisions to continue
Additional 1% interest on deposit from remittance through banking system from Nepalese in foreign employment
 
Credit Disbur­sem­ent
MSME Loans <Rs. 1 crore (15% of total portfolio) to continue
Focal desk for agricu­lture, MSME loans in commercial banks undergoing govt. trans. in local levels
Deprived sector loans to be gradually diverted towards MSME sectors
 
Deprived Sector Loan (DSL)
Business loans upto Rs. 15 lakhs to employees loosing job in tourism to be taken in DSL
Auto Loan upto Rs. 25 lakhs for self employment to be taken in DSL
Loan to women entrep­reneurs for Micro Industries and self employment in project collateral upto Rs. 20 lakhs counted in DSL (compu­lsory insurance)
Loan upto Rs. 20 lakhs to actual farmer in project collateral to be counted in DSL (compu­lsory insurance)
 
Credit Repayment Period Addition, Restru­cturing & Resche­dul­ing
Current provision of 2 years continuous loss to be classified into watchlist category to be increased to 3 years
Facility to BFIs to self reduce instalment amount & increase repayment period for loans having adverse impact on financial position & cash flow position due to Covid 19
EMI/EQI upto Asar 2078 during lockdown period may be extended to 2078 Poush
No fine/penal charge on interest accrual on loans disbursed to hotel, travel, trekking and airlines upto Asar 2079.
Principal and interest repayment upto Poush 2078 period to be increased by 1 year for loans highly impacted by Covid-19 & to MSME whose cash flow is blocked.
Restru­cturing and Resche­duling on highly impacted loans due to Covid 19 till Poush 2078
Additional Rs. 2 lakhs loan for repair & mainte­nance of public transp­ort­ation
 
Other Provisions relating to credit
Credit to Deposit Ratio to be maintained within 90% till Ashadh 2079 (Current 85% provision of CCD to be removed)
Consortium limit of Rs. 1 billion to be increased to Rs. 2 billion
Special refinance to BroadBand Internet in rural areas
Compliance to Specified Sectoral Loan by “A” class may be done in lumpsum till 2079 Ashadh.
Interest capita­liz­ation of ongoing projects in moratorium period pre approved by NRB to be continued till 2079 Ashadh
Provision on interest capita­liz­ation on long term agricu­ltural loans
Loan to vaccine manufa­cturing company at base rate of BFIs.
Policy reforms for loan facili­tation in case of business change by MSMEs
LTV ratio on margin lending loan same (70%)
Maximum margin lending loan from 1 BFI to be Rs. 4 cr. & from all BFIs to be Rs. 12 cr.
Profes­sionals impacted by covid 19 to be provided loans upto specific limit.
Refinance facility for charging station establ­ishment
Easy loan disbursal to establish up to 100 bed hospitals in local levels not having hospitals
Provision of credit to instit­utions providing technical & business training.
Facili­tation for financial resources to establish industries based on domestic raw materials
 
Addi­tional Facilities for Merger till 2080 Ashadh end
1 year addition to comply specified sector loan.
0.5% relaxation in CRR & 1% relaxation in SLR till 1 year of joint operation
Per instit­utional deposit limit to be increased by 5%
Relaxation in 6 months cooling period to Directors & top management
1% relaxation in interest spread rate
• No approval of NRB required to merge branches within 1 km.
• No approval of NRB required to merge branches within 1 km.
• All above facilities for BFIs acquiring proble­matic BFIs
• Provision for candidacy in director either from promoter group or ordinary group option to be given to shareh­olders.
• Provision to open corporate office at a suitable place within workscope as well as to open corres­pon­dence office in province capital and Kathmandu to promote merger & acquis­ition for province level BFIs

Regulatory and Superv­isory Provisions

• Counte­rcy­clical buffer suspension till 2079 Ashadh
• Fixed interest rates on term loans
• Spread rate same (4.4%)
• Base rate calcul­ation method review & Only 2% premium addition for loans <= Rs. 1 crores to operate business
• Project based lending to be made effective
• Working Capital Loan Directions
• Superv­isory Inform­ation System (SIS)
• Co-ord­ination with other regulatory bodies & stakeh­olders for joint superv­ision of subsidiary companies of BFIs.
• Policy co-ord­ination & technical support to regulators for regulation & superv­ision of co-ope­rat­ives.
• Blackl­isting provision to be reviewed.
• Change in regulation mechanism of instit­utions licensed for hire-p­urchase transa­ctions.
• Indepe­ndent audit of refinance, business continuity loan & effect­iveness as well as utiliz­ation of subsidized loan.
• Directions of CSR
• No approval for liaison office in Karnali & Sudurp­aschim province.
• E-KYC to be developed.
• Co-ord­ination with ICAN for limit in external audit by audit firms

Microf­inance

• Retail lending to be allowed to MFIs after merger/ acquis­ition of Wholesale lending MFIs with retail lending MFIs.
• Merger within 2079 Ashadh of microf­inance having cross holding of A, B and C class.
• Maximum 5 lakhs loan to be allowed per co-ope­ratives member for joint farming and livestock.
• Required study of MFIs to work as financial repres­ent­ative of commercial bank.
• National level MFIs to comply NFRS

Payment System

• 2079/80 as Electronic Payment Transa­ction Promotion year.
• National Payment Switch establ­ishment to be completed.
• Special Refinance to PSO, PSP and ISP
• Review of electronic transa­ction limit and policy reform for suitable electronic transa­ction fee.
• Required facili­tation in all revenue & other payments to Govt. through banking and electronic mode.
• Social security allowance to be made easily available through electronic payment from bank branches performing govt. transa­ction
• Digital Lending Framework formul­ation & implem­ent­ation
• Study of Central Bank Digital Currency
• Electronic applic­ation provision for Citizen Saving Certif­icate & Foreign Employment Saving Certif­icate.
• Study for cloud infras­tru­cture for safety of payment system
• Study on PSPs to provide loan upto specified limit through digital mode for MSMEs and start up business

Foreign Exchange Management

• Review on exchange facility for abroad service agreement by Nepalese entities.
• Up to 25,000$ exchange facility from “A” class to airway service provider for service import
• Credit Inform­ation not compulsory for payment in draft/TT upto specified limit.
• Direct payment facility to abroad through “A” class by National Priority Projects
• Existing list of importable goods &s­ervices from India to be reviewed
• No renewal fees on foreign exchange license till 2079 Ashadh
• Management of service import like apps, software & online advert­isement through co-ord­ination with regula­tor­s/s­tak­eho­lders
• Merger of remittance companies
• Review of maximum cash limit that Nepalese citizens can keep in conver­tible foreign exchange, time period & its exchange
• Review & support in import of medical supplies for Covid-19
• Study on possib­ility to send remittance through agency account of NRB in countries having difficulty to remit in US$
• Study the situation of utiliz­ation of card upto USD 500 to promote ecommerce and make it more effective.
• Study on implem­ent­ation status of Foreign Investment & Loan Management Byelaws, 2078

Customer Interest Protection

• Formul­ation of Financial Customer Protection laws
• At least one branch and ATM lounge of BFIs to be disabled friendly in local levels having branches more than specific limit
• BFIs to keep the link of grievance portal of NRB in their website.
• Required provisions for uniformity in credit lending and KYC documents.
• Required study to be done for Province Financial Instit­ution to increase financial access in Karnali & Sudurp­aschim Province
• Special monitoring & superv­ision for identi­fic­ation, measur­ement, evaluation and management of high risk sectors pointed by NRA,2020
 

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