NRB unveils monetary policy for FY 2074/75; margin lending capped at 40% of core capital, further curb in real estate loans inside KTM

Dr. Chiranjibi Nepal, Governor of NRB, unveiled the monetary policy for FY 2074/74 today at Hotel Radisson in Lazimpat, Kathmandu at 1:00 PM. As per the central bank, the Monetary Policy for 2074/75 has been formulated to achieve the budget’s target to achieve 7.20% economic growth. The monetary policy has tried to come up with provisions to maintain interest rates within appropriate bounds so as to minimize its volatility, as projected in the policy. The policy has defined Hydroelectricity, Agriculture, Export, Tourism, SME Industries, Pharmaceuticals, Cement and Garment Industry as priority productive sectors. Commercials banks are now required to disburse at least 10% of their loan portfolio in agriculture, 5% in hydroelectricity, 5% in tourism and rest 5% in other priority sectors for a total of 25% to be lent to priority sectors. Development Banks should disburse 15% & finance companies should disburse 10% to priority sectors. Through this monetary policy, NRB has said that commercial banks are no longer required to directly lend 2% to deprived sectors. However existing provision that requires commercial banks to lend 5%, development banks 4.5%, and finance companies to lend 4% to deprived sectors has not been amended. Earlier, banks were required to directly disburse at least 2% of their total loan portfolio in the deprived sector and the remaining 3% of the deprived sector loans to be made through microfinance institutions. NRB has also withdrawn the relaxation it had provided when calculating CCD ratio. Now, commercial banks cannot include lending to productive sectors while calculating (Credit and Core Capital to Deposit) CCD ratio. The ratio must be maintained at a maximum of 80% as per the earlier provision by Ashoj 2074. Earlier, NRB had relaxed CCD ratio through mid-term review of monetary policy for 2073/74. Margin lending has now been limited to 40 percent of core capital towards margin sector loans. Similarly, the margin for keeping shares of a single company as collateral will account for a maximum of 10% of total margin. Down payment for Auto loan has been reduced to 35% from existing 50%. Now, banks can lend up to 65% for auto loans. Likewise, down payment for auto loans for private electric vehicles has been reduced to 20% only. Payments above Rs 10 lakh has to be done compulsorily through account payee cheques. The monetary policy has reduced the limit of real estate lending inside Kathmandu valley. In the past, the limit of the loan was 50 per cent of the value of collateral. Now, the limit has been reduced to 40 percent inside Kathmandu valley only. Monetary Policy 2074/75 Summary: