The monetary and financial instruments to be used in the mid-term monetary policy review and its potential effects are:
1. The bank rate has been increased by 2 percentage points from the existing 5 percent to 7 percent. The fixed liquidity facility rate related to interest rate corridor has been fixed at 7 percent, policy repo rate at 5.5 percent and deposit collection rate at 4 percent. The existing mandatory cash ratio and statutory liquidity ratio have been maintained.
-The cost of banks and financial institutions seems to increase slightly.
-With the lack of liquidity and the interest rate on treasury bills exceeding 5%,
-NRB seems to have raised the bank rate to 7%. Thus, it is understood that the NRB itself does not see the liquidity situation easing quickly.
2. Under the refinancing facility provided by this bank on the collateral of good loan provided by banks and financial institutions, the maximum interest rate to be charged from the concerned customer will be maintained at 7 percent.
-NRB, which is not giving much incentive to refinance, will increase the interest rate on refinancing by 2 percentage points to the current interest rate. Due to this, the interest expense of the borrowers who are currently using the loan is likely to increase.
3. Among the various types of loans disbursed by banks and financial institutions, a study will be done to differentiate the interest rate of loan disbursed to productive sector to be less than the interest rate of loan disbursed to other sector. This arrangement will be implemented as a model from any one sector from next quarter.
-This will be further compounded by the fact that the interest rate on banking has to be repeatedly instructed not to do this. Instructions will be issued specifying that the premium cannot be added at the base rate or more than 1% or 2% of the base rate. Debtors in the area will be relieved of interest expenses and will have a negative impact on banking profits.
4. The risk weight of import loan including trust receipt of banks and financial institutions, personal overdraft loan, real estate loan related to land plotting, personal hire purchase loan and loan of margin nature will be reviewed.
Impact: NRB will increase the risk burden of the above mentioned loans. As a result, banks and financial institutions will add interest premiums when providing such loans to maintain the RORC of such loans. This will further discourage loans to the sector. NRB seeks to shift resource mobilization to productive and priority sectors, and this arrangement will support that goal.
5. Arrangements will be made for the Infrastructure Development Bank to issue energy bonds.
Impact: The issuance of energy bonds by the Infrastructure Development Bank will on the one hand help the institution to add resources and on the other hand, if the bonds are available for purchase by other banks, it will also help to increase the undisclosed investment in the banking energy sector. Additional investment will be made in the energy sector.
6. In view of the impact of COVID 19, the credit limit to be extended by the commercial banks to the agriculture, energy and small, home, small and medium enterprises in the specified areas on the basis of their expertise will be reviewed.
Impact: The credit limit for agriculture, energy and small, home, small and medium enterprises is expected to increase. This will help banking to comply with regulatory arrangements. The limit for disbursement in domestic, small and medium enterprises is Rs. 10 million and banks have to invest 15% of the total loan in these sectors. There is provision for disbursement of 10% in energy, 15% in agriculture and 5% in microfinance.
7. The existing system of importing goods from India with credit facility will be reviewed.
Referance: By Manoj Gewali