NRB retains CRR, SLR and other key tools, but hints at reviewing marginal lending

ShareSansar, March 4:

Despite some media reports that Nepal Rastra Bank will raise the CRR rate by 0.5 percent to rein in excess liquidity in the capital market, especially the banking sector, the central bank did not declare this through the mid-term review of the monetary policy which was unveiled yesterday.

Addressing the function, Governor Dr Yuvraj Khatiwada, however, hinted that the central bank might raise CRR and SLR in the future, besides directing BFIs to expand loan in the productive sector with an aim to control excess liquidity in the banking system and also to curb inflation.

“The central bank has stated discussion on some long-term tools to address liquidity and inflation,” the Governor said.

The central bank has also not decided to change the existing spread rate of 5 percent, stating that the government was in the mood to go against the open market policy of letting the BFIs to fix the spread rate.

However, the Governor added, “The existing 5 percent spread rate is high in itself. We can change the method of calculating it through discussion.”

The Governor also hinted at taking a strong stance on marginal lending, stating that the surplus liquidity in the banking system should not “unnaturally” raise the stock market.

“The central bank is not a regulatory body of the share market,” he said. “But there should not be unnatural growth in the share market due easily available liquidity in the financial sector.”

‘Acquisition policy ready’

Governor Khatiwada also informed that the central bank has already prepared Acquisition bi-regulations to encourage acquisition of one or more BFIs by the other.

According to the informed sources, some leading commercial banks and BFIs prefer to acquire smaller BFIs over the merger since merger usually entails hiring the staff from those BFIs besides other liabilities.

He further announced a separate department under the central bank to look into the issues pertaining to BFIs in crisis.

Though the central bank has announced some half a dozen BFIs in crisis moths ago, there is not much improvement in their financial health.

Hence the central bank is also planning to come up with a concept paper to deal with them.