Nepal | July 16, 2020

EDITORIAL: In the right direction

The Himalayan Times
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The policy focusses on stability of the banking sector and also on meeting the economic growth target set by the government

Nepal Rastra Bank (NRB) on Wednesday unveiled its monetary policy for the fiscal year 2019-20, aiming at addressing the issues related to the loanable funds crunch and credit growth, among others. Private sector players have taken the measures taken by the central bank positively, which, they say, will help control inflation, manage liquidity, stabilise the interest rates, facilitate and encourage mergers and acquisitions in the banking sector, and finally ensure financial stability. These are some of the key concerns the monetary policy has tried to address in the banking sector. As per the policy, it is mandatory for the commercial banks to issue debentures/ corporate bonds amounting to 25 per cent of their paid-up capital by fiscal end. The central bank has projected that money supply growth will be limited to 18 per cent and private sector growth to 21 per cent in the current fiscal. NRB has also projected 20 per cent private sector credit growth along with domestic credit growth at 24 per cent for this fiscal. Commercial banks will be allowed to borrow in convertible currency from foreign institutions, including pension funds and hedge funds, fixed deposits in foreign currency from foreign depositors and non-resident Nepalis. The BFIs can disburse such deposits as loans in Nepali currency.

NRB has also reduced the maximum interest rates on loans, floated under the general finance fund of NRB that BFIs can take, to 7 per cent from 8 per cent. Financing loans of up to Rs 1 million will be issued to the BFIs on the back of good loans at 3 per cent interest rate against five per cent last year. However, the BFIs cannot levy more than 7 per cent interest to SME borrowers on such loans. The central bank has also brought down the interest rate on general financing loan to 3 per cent from 4 per cent and, has also reduced the bank rate to 6 per cent from 6.5 per cent. The policy has made it mandatory for micro-finance firms to disburse one-third of their total loans in the agriculture sector to raise the credit flow in it. NRB has also made PAN mandatory to seek loans of above Rs 5 million from BFIs. Earlier, it was Rs 10 million. The central bank has also told the BFIs to bring the spread rate to 4.4 per cent by mid-July 2020, as envisaged by the Financial Sector Development Strategy. This will greatly help reduce the interest rates on bank loans.

The NRB has barred the BFIs from adding more than 2 per cent interest premium on their base rate while fixing the lending rate on loans of up to Rs 1.5 million disbursed in agriculture, entrepreneurship and business promotion. From now onwards, the BFIs cannot take any service charge from borrowers on such loans, and they will have to approve such a loan demand within seven days. Allaying fears that the central bank would adopt a policy of “forced merger” of the financial institutions, the policy has made it “optional”. The NRB has, however, offered incentives to banks for the merger. The merged banks will not have to take approval of the NRB to expand their branches either. On the whole, the monetary policy is in the right direction in ensuring financial stability. The success of the policy will, however, depend on how it is implemented.

Groundwater recharge

Groundwater depletion is a major environmental problem facing Kathmandu, and a plan of the Kathmandu Metropolitan City to recharge it is already long overdue. The reason behind the fast depletion of groundwater in the Kathmandu Valley is because it is withdrawn faster than it can be replenished. Kathmandu has faced perennial water shortage, and the only way to overcome it is to bore a well. From households to business complexes to hospitals and hotels, all depend on deep boring for their water needs. Even the utility company that supplies water to the mains draws 50 per cent of its water from groundwater.

This is simply unsustainable as the vast concrete jungle that Kathmandu is today simply does not allow water to seep into the soil to recharge the ground water. The falling water table has led to reduced water flow in the rivers and streams, increased the cost of pumping water and dried up wells. One solution to cutting down on groundwater extraction is to harvest rainwater. There is plenty of rain during the summer months, and it rains for some days in winter. The collected water could meet a lot of the inhabitants’ needs if used economically.

A version of this article appears in print on July 26, 2019 of The Himalayan Times.

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