‘Channelise resources to productive sector’

Kathmandu, August 21

Lawmakers have urged Nepal Rastra Bank (NRB) to encourage financial institutions to mobilise long-term deposits and bonds/debentures to serve the credit requirement in the industrial and infrastructure sectors.

Speaking at Finance Committee meeting of Federal Parliament, lawmaker and former finance minister Surendra Pandey said banks and financial institutions (BFIs) have been collecting short-term deposits and as a result mobilising a large chunk of resources on trade financing, which has a short payback period.

“Unless BFIs start mobilising long-term nature of deposits and bonds/debentures, they won’t be able to offer loans of long-term nature needed for industrial growth and infrastructure development,” said Pandey.

“The credit mobilisation of BFIs has been fuelling import growth because trading businesses pay back their loans within a short period of time. But payback period of the industries and infrastructure is longer.”

Stating that the need of the country is to channelise resources of BFIs to the productive sector and infrastructure, Pandey stressed on necessity of long-term deposit mobilisation by BFIs so that they can float loans that have long-term payback period. “At least five to six years is required for a hydel project to start operation after its construction begins, which is why to increase investment in such projects and industries, BFIs must look into mobilising long-term deposits.”

Pandey further stated that a suitable environment must be created to meet the government’s growth target.

Similarly, lawmaker and former finance minister Bishnu Poudel opined that the Monetary Policy of this fiscal has not introduced any new policy to ensure easy access of credit to entrepreneurs at cheaper rates to propel growth.

Also speaking in the meeting, lawmaker and former finance minister Gyanendra Bahadur Karki highlighted that the excessively high lending rates since long have been adversely affecting private sector growth and that the borrowers have been facing turbulent times.

In response to the lawmakers, central bank Governor Chiranjibi Nepal, said that the Monetary Policy of this fiscal has envisioned mobilising resources of the financial sector towards productive sector to achieve high economic growth.

“We’re going to achieve high growth rate in this fiscal too and it will be the third consecutive year that we have achieved high growth,” said Nepal. He said that the share of fixed deposits of BFIs is increasing and hovers at 45 per cent, which points at the possibility of mobilising long-term nature of credit in the productive and infrastructure sectors.

The governor further stated that the central bank has allowed banks to issue bonds/debentures worth up to 100 per cent of their core capital, through which they can easily mobilise Rs 300 billion. And NRB, through Monetary Policy, has allowed commercial banks to borrow up to 25 per cent of their core capital from foreign financial institutions in convertible foreign currency and Indian currency. Through this provision, banks can borrow foreign currency equivalent to Rs 80 billion, as per the governor.

“These arrangements will meet the requirement of financing in the economy and also stabilise interest rate.”