NBA Submits Proposal Requesting Rate Flexibility and Adjusted Lending Limits for Poor Sectors

The Nepal Bankers’ Association (NBA) has submitted a 21 point suggestion package to Nepal Rastra Bank (the central bank) for the upcoming monetary policy. The discussions took place between commercial bank representatives and central bank officials, where lenders highlighted changing market conditions and requested more flexibility in managing their loan rates and required investment limits.

Here are the key points from the banks' proposal:

• Flexible Loan Interest Rates: Commercial banks are asking for permission to change the extra interest charge (the premium rate) they add on top of their base rate when issuing loans. Currently, rules restrict how often they can adjust this extra fee.
• Lower Targets for Poor and Deprived Sectors: Under current regulations, commercial banks are required to invest at least 5% of their total loans into the deprived and poor sectors of the economy. The NBA wants this requirement reduced from 5% down to 4%.
• Shifting Market Demand: Bankers explained that while they traditionally invest heavily in microfinance institutions to meet this 5% target, recent data shows that the overall demand and size of loans within these poor communities have grown significantly, but the actual market capacity to safely absorb these loans has shrunk.
• Review of Base Rate Rules: The association pointed out that although the central bank promised to review and update the formula used to calculate bank base rates in the past two consecutive monetary policy statements, those updates have not yet been implemented.