Kathmandu, July 15

The private sector has hailed the Monetary Policy 2018-19 unveiled by Nepal Rastra Bank last week citing that it will address the current challenges of the banking sector.

The monetary policy's initiative to narrow down the interest rate spread, reduction on cash reserve ratio, facility for banks to borrow in Indian currency and expansion of refinancing window is expected to address the credit crunch and lending rate, according to Shekhar Golchha, senior vice-president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).

“Credit crunch and high lending rates adversely affected the private sector as many projects have remained at a standstill for long due to lack of sufficient credit and the cost of the projects have subsequently escalated,” he added.

The private sector suffered from the aforementioned challenges for two consecutive fiscal years - previous fiscal and ongoing fiscal - as per Golchha. “A situation of financial repression was witnessed under the guise of a gentleman's agreement among the bankers in fixing the deposit rates. This was a turbulent time for the private sector borrowers.”

Golchha said that even though it is late, the central bank has tried to address the problems being faced by the private sector. He urged the central bank to simplify the process to mobilise the refinancing loan as there are procedural hassles like renewal of loans every six months and its availability to only a few limited sectors.

The FNCCI senior vice-president further stated that the provision to borrow in Indian currency by the banks will ensure the easy availability of Indian currency in Nepal, which is considered a prime currency in the country due to concentration of imports from India and increasing flow of students and those who travel to India for health check-ups..

Shailendra Guragain, president of Independent Power Producers' Association Nepal (IPPAN), said that hydropower developers are quite optimistic about the monetary policy as it has raised the lending to the energy and tourism sectors to 15 per cent of the total loan portfolio of the banks.

“This provision will ensure the flow of loans from banks to the hydroelectricity sector and the facility provided to banks to obtain loans in Indian currency will fulfil the credit requirement in this sector,” Guragain reiterated.

Likewise, the Confederation of Nepalese Industries (CNI) has said that the high lending rates and credit crunch are expected to be addressed as the monetary policy has a provision of forwards contract on exchange rate risk of the funds borrowed by the commercial banks from foreign banks and there is also a provision that the banks and financial institutions can mobilise the funds through issuance of bonds and debentures.