May 2: At a time when foreign exchange reserves are declining due to increasing balance of payments deficit, the finance ministry has given approval to state-owned banks to bring loans in foreign currency.
The Ministry of Finance has given permission to Rastriya Banijya Bank to acquire foreign loans up to US $100 million. Earlier, Nepal Rastra Bank had made arrangements only for private banks to bring foreign loans.
Chief of the Financial Sector Management and Institutional Coordination Division of the Ministry of Finance, Ramesh Kumar KC, said that the banks can move ahead with the process of taking foreign loans with the approval of MoF. According to RBB, it is preparing to take the loan in two installments. The bank has also stated that it will bring loan by issuing international bids.
Chief Executive Officer of RBB Kiran Kumar Shrestha said that the process of taking loan on needs basis will start from this month.
According to him, RRB has not acquired any loan from abroad so far. This is the first time it is about to take loan.
Finance Minister Janardan Sharma had said that he would help the banks to acquire loans. It is believed that this will resolve the liquidity crisis in the banking system and the deepening problem of foreign exchange reserves.
Nine financial institutions had acquired foreign loans three years ago due to the liquidity crisis. Mega Bank, Sunrise Bank, Laxmi Bank, Machhapuchhre Bank, Global IME Bank and NMB Bank are the commercial banks that have acquired loans from abroad. Similarly, last year, Nirdhan Utthan, RMDC and Manushi Microfinance had also acquired foreign loans.
As the liquidity crunch deepens, commercial banks and microfinances are currently preparing to bring in loans from abroad. Global IME Bank has entered into an agreement with CDC Group, a UK-based development finance institution, to bring in funds from abroad. As there was a shortage of investable money in the market, the central bank had made an arrangement in March/April 2018 for banks and financial institutions to bring loans in convertible foreign currency from abroad. Earlier, NMB Bank had taken a loan from IFC and Laxmi Bank had brought foreign loan from Doha Bank, Dubai.
Banks are allowed to borrow up to 100 percent of their primary capital from foreign banks. Banks can invest that loan in renewable energy, production and transmission lines, physical infrastructure such as roads, tunnels, airports, cable cars, bridges, tourism, agriculture, small and medium enterprises, manufacturing industries as well as microfinance.