NRB should do away with mandatory lending

KATHMANDU, JUNE 15:

Bankers have expressed the need to remove mandatory directed lending imposed by the central bank.

“Nepal Rastra Bank (NRB) has made deprived sector lending of up to four per cent of the banks’ lending portfolio mandatory without considering that it is not viable. Likewise, directives to double

loans to the productive sector and increasing loans to hydro and agro sectors to 10 per cent of loans are equally impractical,” said president of Nepal Bankers’ Association (NBA) Rajan Singh Bhandari, during an interaction on the upcoming monetary policy organised by Management Association of Nepal.

“Banks never say no to a viable project. The absence of productive projects at present in our country is not

because of our reluctance to finance, but due to the absence of a conducive investment climate,” he said.

Bhandari also pointed out that mandatory deprived sector lending is not helping increase access to finance to the deprived sector.

“Banks lend to wholesale microfinance lenders at five per cent in order to avoid being penalised, and those institutions make profits by depositing money in financial institutions at a higher interest rate and not by lending it to the deprived population,” he said.

He pointed out that monetary policy is also not able to address the financial management issues properly due to fundamental flaws in the whole system of the country including both political and economic.

During the interaction, senior economist Tul Raj Basyal pointed out that monetary targets set by the central bank while formulating the monetary policy is never accurate.

“The monetary authority has never been able to achieve the targets such as growth rate, inflation, balance of payments surplus, deposit mobilisation, and money supply, among others,” he said, while presenting his paper on the topic.

In the last two fiscal years, the fiscal and monetary authority had a target to achieve 5.5 per cent and five per cent growth rate, but the achieved growth was at 3.8 per cent and 4.5 per cent, respectively. This fiscal year also the targeted rate of 5.5 per cent will not be achieved and growth will remain at 3.6 per cent.

Likewise, the rate of rise in general price levels is always higher in reality than the targeted inflation rate.

“The high rate of fluctuation in liquidity in the financial system also shows how ineffective central bank’s monetary management is,” said Basyal.

The senior economist added that the central bank needs to focus on setting achievable goals and improving its monetary management so that set targets can be achieved in the coming years.

Source: THT