KATHMANDU, NOVEMBER 27

Nepal Rastra Bank (NRB) has reduced the interest rate spread (difference between interest rates between loan and deposit) of banking and financial institutions (BFIs).

The central bank, unveiling the first quarter review of the Monetary Policy 2022- 23, has reduced the interest rate spread of commercial banks from 4.4 per cent to four per cent.

This means that interest rate on loans will come down.

Likewise, the average interest rate difference of development banks and finance companies has been reduced from five per cent to 4.6 per cent.

Following the reduction in interest rate spread, the NRB has expected that the premium rate charged by BFIs while setting the loan interest rate will come down.

Earlier, the private sector had expressed agitation that the central bank had not taken any action to bring down the banks' interest rate.

Likewise, if the BFIs are unable to provide loans in the designated areas in view of the liquidity crunch, the central bank will make arrangements to calculate the shortfall from mid-December 2023 on basis of mid- June 2023.

The first quarter review also mentioned that the fine imposed on banks and financial institutions will be reviewed based on the liquidity risk, if the specified loan-deposit ratio is not reached.

'Investments made by banks and financial institutions in the bonds issued by public limited companies related to the agricultural sector in the secondary market will be allowed to be counted within the specified limits so that the bank has to invest minimum loans in that sector,' the review read.

Meanwhile, microfinance financial institutions will have to publish the base rate on monthly basis from mid-January.

The central bank has given continuity to the guidance of the monetary policy of current fiscal as the pressures on price and external sector stability remain.

A version of this article appears in the print on November 28, 2022, of The Himalayan Times.