NRB eases rules on CCD calculation, lending to productive sector

Kathmandu, February 12

Banks facing acute crisis of loanable funds have been provided some relief as Nepal Rastra Bank (NRB) — the central regulatory and monetary authority — has provisioned the credit to core capital cum deposit (CCD) ratio calculation every month.

In the half-yearly review of the Monetary Policy 2017-18, unveiled today, the central bank has provisioned to penalise banks only if their CCD level overshoots the permissible level of 80 per cent based on the monthly average.

Earlier, there was provision to count CCD on daily basis and the central bank had introduced the provision to compel banks to abide by prudent lending practices. Banks were penalised if their CCD level crossed 80 per cent on a daily basis.

The revised provision has provided some respite to the banks as they would not have to worry about meeting the regulatory requirement of CCD every day and would just have to be mindful about their average CCD calculated at the end of month, according to Nara Bahadur Thapa, executive director of NRB.

The central bank had come up with the policy to calculate CCD every day following the banks’ aggressive lending practice, while overlooking their deposit collection.

Similarly, the central bank has raised the refinancing facility from Rs 20 billion to Rs 25 billion owing to loanable fund crisis in the banking system due to slow deposit growth compared to credit demand. The central bank has refinancing fund of Rs 20 billion and it plans to add Rs five billion to this fund from the profit earned by the central bank in this fiscal, as per the mid-term review of the monetary policy.

The half-yearly review of the monetary policy has also introduced the loan booking system in another bank to meet the regulatory requirement of productive sector lending. This means that if a commercial bank is unable to meet the productive sector lending requirement — that is, 10 per cent in agriculture and five per cent each in hydro and tourism and five per cent in other productive sector defined by the central bank — the bank can buy loan from another bank that has exceeded the given target.

However, the bankers’ have commented that this provision could adversely affect loan expansion in productive sector.

The central bank has also curbed rampant practice of issuance of over draft (OD) from the banks and financial institutions (BFIs). The BFIs cannot extend OD of more than 15 per cent of its total loan portfolio. As per the provision introduced through the mid-term review of monetary policy, BFIs that exceed the given limit would have to bring their OD under the cap of up to 15 per cent by mid-January of 2019.