December 10: The central bank, which has been adopting a tight monetary policy for 'economic reforms', has become flexible to 'make the economy vibrant. Nepal Rastra Bank has become flexible towards the monetary policy through the first quarter review after analyzing that the indicators of the external sector have eased in the economy due to the tight policy.

According to the central bank, it adopted flexibility in the policy arrangements in view of the improvement in domestic economic situation along with the increase in foreign exchange reserves. Moreover, there was pressure from all sides to become flexible because of the increasing problems in the economy due to strict policies.

On Friday, while unveiling the first quarterly review of the monetary policy of the current fiscal year, the central bank indicated that it is going to reduce the interest rate by reducing the interest rate corridor. Likewise, the provisions related to the existing risk weight of share mortgage, real estate and hire purchase loans have been reviewed.

The installment of housing loan has also revised. In order to provide relief to the businessmen who are in trouble due to the decline in economic activities, arrangements have been made to restructure loans and provide housing loans at subsidized interest rates in earthquake-affected areas.

NRB Governor Maha Prasad Adhikari said in a press conference on Friday that the policy rates have been reviewed to increase credit investment. "Although the liquidity situation has eased recently, banks have not been able to increase credit flow," he said.

Governor Adhikari claimed that if the central bank’s decision to reduce the policy rates will decrease the interest rate and the credit flow will increase and this will revive the sluggish economy. "The big countries of the world still have a tight monetary policy," he said.

Efforts to reduce interest rates

The central bank has tried to reduce the interest rate by reviewing the monetary policy. In the policy, the bank rate has been reduced from 7.5 percent to 7 percent, the policy rate has been reduced from 6.5 percent to 5.5 percent and the deposit collection rate has been reduced from 4.5 percent to 3 percent. However, the mandatory cash reserve ratio (CRR) and statutory liquidity ratio (SLR) have been kept unchanged. Banks get overnight liquidity facility at policy rate and permanent liquidity facility at bank rate. The central bank has said that if the policy and bank rates decrease, the cost of liquidity management of the banks will be reduced and the interest rate will also be cheaper.

Likewise, the period during which bonds can be counted as deposits has also been extended to raise funds for lending to the banks.

Relief to distressed debtors

NRB announced that relief will be given to the borrowers of banks and financial institutions who are in trouble due to the review of monetary policy. It is mentioned in the review that the central bank will facilitate the borrowers who are in trouble due to circumstances through means such as loan restructuring and rescheduling while action will be taken against those who do not pay loan on purpose.

Based on the analysis of the applications received from the borrowers who are in trouble, it has been announced that the period in which the banks can restructure the loan by charging 10 percent of the outstanding interest will be maintained until mid-April.

Previously, the period for loan restructuring and rescheduling was until the mid-December.

Similarly, it is mentioned in the review that if the borrowers who are in regular contact with the microfinance financial institution but are unable to regularize their loan payments due to situational problems, they will be able to restructure the loans of such borrowers if they submit an application for loan restructuring within the next three months.

Address to earthquake victims

Nepal Rastra Bank has announced that it will provide loans at subsidized interest rates for the reconstruction of residential houses damaged due to the November 3  earthquake in western Nepal. In the review of monetary policy, it is mentioned that when banks and financial institutions give residential home loans of up to Rs 2.5 million to the families listed as earthquake victims, there will be no additional premium of more than 2 percentage points on the base rate. Similarly, it has been announced in the review that for the reconstruction of public schools, public hospitals and health posts damaged due to the earthquake, banks can contribute up to 40 percent of the amount to be spent separately to the social responsibility fund from the profits of the previous and current years.

Flexible in real estate loans

Through the revised monetary policy, the NRB has decided to reduce the risk weight of real estate loans and maintain the risk weight for share mortgage loans exceeding Rs 50 million at 125 percent.