Himalayan News Service

Kathmandu, July 22:

Monetary Policy (MP) presented by Nepal Rastra Bank (NRB) governor Bijay Nath Bhattarai today has made travellers while displeasing the banking sector over the new provision of capital adequacy ratio (CAR) that will affect their liquidity. CAR has been increased to 12 per cent from its earlier 11 per cent, despite bankers having demanded a reduction to 10 per cent. Travellers, individuals or institutions, have a reason to smile that they can carry foreign exchange upto $1,500 while going abroad which is hoped to benefit general public at large, according to the new MP. Commenting on CAR, Prithvi Bahadur Pandey, CEO of Nepal Investment Bank (NIB) said that the existing CAR is the highest in South Asia, which will ultimately affect liquidity, weakening banks. Pandey said this comes on the wake of the two largest commercial banks – Nepal Bank Ltd (NBL) and Rastriya Banijya Bank (RBB) not having to maintain CAR.

Narendra Bhattarai, managing director of Nepal Credit and Commerce (NCC) Bank also commented that CAR increment will reduce the lending capacity of banks which is quite contradictory at a time when the central bank has targeted to achieve a GDP growth at 4.0 - 4.5 per cent. At the rate of 10 per cent, lending capacity would be eroded, said Bhattarai adding that when the Central Bank expects to lend at a rate of 18 per cent in the MP.

Meanwhile, Bhattarai warned commercial banks to increase deposit interest rates saying that the central bank has adopted a cautious monetary policy to boost investment and maintain macro-economic stability. In the monetary policy, NRB has spelt out that foreign exchange facility for individuals as settlement expenditure while migrating to developed countries like USA, Canada, Australia, New Zealand and UK has been raised to $5,000 for individuals and $10,000 in the case of a family.

Firms, institutions and companies from now on having the source of foreign exchange earnings do not have to take permission from the central bank to make payment for stall booking charge, registration fee, service charge in foreign currency while taking part in exhibitions in countries other than India to promote their businesses, said MP report. Bankers criticised the monetary policy saying that standing liquidity facilities (SLF) provision has been reduced from five days to three days which will make it difficult for banks to maintain liquidity.

Bankers also said that the inter-bank rate has been increased from 5.5 per cent to six per cent. With this revision, real interest rate is likely to be positive.

NRB says that in the current situation, as price is facing pressures and there is a need for caution in the stability of external sector, the existing bank rate of 5.5 per cent is revised upward to six per cent. NRB has kept Cash Reserves Ratio (CRR) unchanged, due to pressures on price and external sector stability, which stands at five per cent now. With a view to boost export sector, the provision of exporting goods and services based on bank guarantee under Cash Against Document (CAD) has been amended. Currently, under this provision, NRB can grant permission for export of goods amounting to $100,000 at a time, if an exporter submits an application with a bank guarantee amounting to five per cent of the export proceeds. Since this provision is quite popular among exporters, the limit of US dollar 100,000 has been revised upward to $200,000.

Under the existing provision, private importers of chemical fertilizer are required to deposit 10 per cent of import value in commercial banks or they have to produce bank guarantee while releasing document to import chemical fertilizer in Nepal. In order to provide additional incentive to the private sector to import chemical fertilizer, and lower the cost to farmers this margin has been reduced to two per cent. Currently, private sector industries, companies and firms operating in Nepal are required to get approval from NRB to borrow from abroad, which has been amended. The procedures has been made easy for interested parties to borrow from abroad for a period of one year and above without pledging any domestic asset as collateral instead of taking prior permission. They will just require to notify the NRB under the revised provision. Refinance rate for export credit (domestic currency) and agriculture credit has been revised from existing three per cent to 3.5 per cent. However, refinance rate for sick

industries remains unchanged at 1.5 per cent.

Highlights

•CAR raised to 12pc

•Private sector can borrow from abroad

•CRR unchanged

•Fertilizer importers’ deposit reduced to 2pc

•Refinancing rate 3.5pc from an earlier 3pc

•GDP growth rate 4 to 4.5pc