NRB relaxes rules to capitalise on specialisation of banks

Kathmandu, February 14

Nepal Rastra Bank (NRB) is expecting the revision in Monetary Policy 2017-18, which has provided an alternative for commercial banks to book (buy) loans of another bank to meet the regulatory requirement of productive sector lending, will help increase lending to the productive sector as per the specialisation of the banks.

Banks are required to float 25 per cent of their total loan portfolio to the productive sector. Under this regulatory provision, individual banks have to issue 10 per cent of the total loan amount in agriculture sector, five per cent in hydropower, five per cent in tourism sector, and five per cent in other productive sectors as defined by NRB.

However, during the mid-term review of the monetary policy, the central bank introduced a new provision, which provided alternatives for the banks to book loans in another bank that has better portfolio in a particular sector.

Nara BahadurThapa, executive director of the research department of NRB, said that this provision has provided an opportunity for the banks to better perform in productive sector lending. “Each bank has its own specialisation in terms of productive sector lending and the central bank has removed the earlier burden on banks through revision of the monetary policy,” Thapa stated.

“The revision was made considering that a bank that has specialisation in agriculture lending may not have expertise in tourism or hydropower sectors.”

This provision, as per NRB Executive Director Thapa, will help banks to concentrate in the areas of their specialisation and meet the requirement of other productive sectors defined by the central bank by booking loans from another commercial bank that has good exposure in a particular sector.

The central bank’s clarification has come at a time when NRB had been criticised by certain stakeholders that the regulator itself had blocked the chances of more loans being floated to the productive sector.

However, another section of bankers have hailed the provision introduced by NRB and said that the central bank has provided them with an opportunity to lend in the particular areas where they have experience.

Anukool Bhatnagar, vice president of Nepal Bankers’ Association and managing director of Nepal SBI Bank, said the new provision will help banks minimise their costs.

“As per the earlier provision, each individual bank had to search for feasible projects in agriculture, tourism, manufacturing, hydropower, etcetera, even when they might not have had the expertise in each sector. If any bank with expertise in agriculture sector lending is forced to lend in tourism sector, the inefficiency of the bank could raise the cost of fund of that bank,” he explained. “Thus, this new provision will raise the efficiency of the banks in productive sector lending.”