Major Takeaways From Third Quarter Review of Nepal's Monetary Policy

Nepal's central bank has unveiled the third quarter review of the monetary policy.

The monetary policy for the fiscal year 2077/78 was unveiled on Shrawan 02, 2077 BS amidst the health crisis and economic crisis created by the Covid-19 pandemic.

As the number of daily cases began to decline, the government had eased the lockdown and economic activities had resumed after the first wave. Thus, the central bank had projected a 4% growth rate. However, the second wave of the virus has hit the country and we are on the second series of lockdown and prohibitory orders. As such, the central bank has speculated that attaining the projected growth rate may prove to be a challenge for the country.

These are the main takeaways from the monetary policy review:

1) The existing mandatory cash ratio, statutory liquidity ratio, bank rate, and interest rate corridor arrangements have been maintained as per the guidelines of monetary policy.

2) Arrangements will be made for the banks and financial institutions to provide loans at the base rate to the existing health care providers, hospitals, or industries in Nepal for the purpose of setting up liquid oxygen plants or oxygen plants.

3) Arrangement will be made to provide a special refinancing loan of up to Rs. 500 million for liquid oxygen plant and up to Rs. 200 million for one year for the purpose of establishing oxygen plants for the existing health care providers, hospitals, or industries operating in Nepal.

4) In case of change of Required Commercial Operation Date of the power projects already approved by this bank for interest capitalization, provisions will be made that approval of NRB is not required for capitalization of interest for that period.

5) Arrangement will be made for the banks and financial institutions not to charge any penalty or additional fee for the recovery of loans from the customers during the period of prohibition issued for the reduction of COVID-19 infection.

6) Arrangements will be made for the banks and financial institutions not to issue any kind of recovery or auction-related notice to borrowers during the period of prohibition issued for the reduction of COVID-19 infection and for one month after the expiry of that period.

7) Arrangements will be made by the banks and financial institutions for the renewal of term deposits, renewal of collateral, letter of credit, and renewal of loans at the request of the customer during the lockdown.

8) Banks and financial institutions will be encouraged to provide discounts to customers who pay loan installments or interest during the lockdown period.

9) Continuation of the provision that banks and financial institutions can calculate the value of security for margin loans on the basis of the average value of the LTP of the last 180 days or the prevailing market value, whichever is less. Up to 70% margin loan can be forwarded against such security.

10) Banks and financial institutions will be required to make the information related to the interest rate change of deposits and loans immediately available to the concerned customers through electronic means.

11) In view of the inconvenient situation developed by COVID-19, in the case of bank accounts that have become inactive due to non-updating of customer identities, arrangements will be made for banks and financial institutions to update such customer accounts through electronic means as well.

12) Banks and financial institutions can channel their funds from Corporate Social Responsibility to life-saving, public interest, and philanthropic work nationwide. In view of the current dire situation, banks and financial institutions will be able to spend the amount of the fund on oxygen cylinders, oxygen concentrators, life-saving vaccines, medicines, etc. Similarly, contributions to philanthropic works such as innovation centers of national importance and human service can be chalked up under CSR.

13) Inspection and supervision regulations and working procedures related to the payment system will be issued for the effective monitoring of the institutions licensed to perform the work related to the payment.

14) Awareness programs will be created and broadcasted for the enhancement of financial literacy.