NRB Directives: Key Amendments Unveiled for Third Quarter Monetary Policy Adjustments

Nepal Rastra Bank (NRB) issued directives yesterday, amending provisions as part of its third-quarter monetary policy review for the fiscal year 2080/81. 

One significant amendment to Clause 9, Sub-Clause (1) of E.Pr. Directive No. 2/080 involves the loan loss provisions for Good loans, which have been reduced from 1.25% to 1.20%, while the provisions for other loan categories remain unchanged. Additionally, for Good loans disbursed to energy and infrastructure projects with a grace period of more than one year, the final year's provision has been reduced from 1.25% to 1.20%, with proportional provisions during the grace period adjusted to 0.30% for the first year, 0.60% for the second year, 0.90% for the third year, and 1.20% for the fourth year.

Following the third-quarter monetary policy review, directives regarding loan loss provisions: for agricultural loans involving crops like sericulture, jute, cotton, and commercial fruit farming the provisions are now 0.2% in the first year, 0.6% in the second year, and 1.2% from the third year onwards. For infrastructure projects in national priority sectors like hydropower and cement, the provision for restructured loans remains at 1.20%, with updated criteria for compliance.

The risk weight on hire purchase loans for vehicles is reduced from 125 percent to 100 percent. In the review of the monetary policy, the Central Bank introduced a provision where banks and financial institutions can sell up to 20 percent of their core capital in one fiscal year from investments made in the mid-category, as well as a provision allowing for the extension of loans for home purchases based on the Debt Service to Gross Income Ratio, from the existing 50 percent to 70 percent, based on the presentation of appropriate evidence.