Kathmandu, July 16

Nepal Rastra Bank (NRB) has said that the Monetary Policy 2017-18 will help fulfil the credit requirement for the economic growth target of 7.2 per cent in this fiscal. NRB has expected 20 per cent credit growth to the private sector in this fiscal and has also raised the productive sector credit requirement of commercial banks to support the government to achieve the desired growth, according to NRB Deputy Governor Chinta Mani Shiwakoti.

Speaking in a programme organised by IBN Media and Research, Deputy Governor Shiwakoti said that the central bank’s policy to increase credit to the productive sector is expected to address the supply side constraints. “Credit mobilised to the productive sector contributes in more value addition in products within the country and also helps create jobs,” said Shiwakoti. “It will ultimately stimulate economic growth.”

“As the government has planned to spend Rs 1,278 billion in this fiscal and transfer a large chunk of resources to the local units, it will also enhance the economic activities at the local level,” he said, also urging the banks and financial institutions (BFIs) to expand their networks to the local level to generate more entrepreneurs at the local level by providing them access to credit.

Economist Keshav Acharya also said that the central bank’s intervention to raise the credit limit to the productive sector from 20 per cent to 25 per cent of the total loan portfolio for commercial banks will be helpful in minimising the burgeoning trade deficit through productive capacity enhancement of the local producers in the country. “However, cost of production has been rising as the interest rates on credit are skyrocketing.”

Meanwhile, development banks have to provide 15 per cent of their total loan portfolio to the productive sector and finance companies have to provide 10 per cent of their total loan portfolio.

“The productive sector has been hit hard by the high interest rates that are levied by banks and financial institutions on credit,” said Acharya, adding, “The government should subsidise a certain per cent of the interest rate to some of the productive sectors to safeguard small and medium scale borrowers in these sectors.”

Citing that the interest rates on both deposits and credit have been rising unnaturally, Anil Keshary Shah, president of Nepal Bankers’ Association, said that BFIs should avoid unhealthy competition to maintain justified interest rates for their sustainability.