Kathmandu – Nepal Rastra Bank announced the monetary policy for the current financial year 2081/82 last Friday. Rashtra Bank Governor Mahaprasad Adhikari has introduced a flexible monetary policy at the end of his tenure, which is being widely discussed. Governor Adhikari has said that due to more liquidity in the banking system, interest rates of deposits and loans are decreasing and he has made more efforts to expand the aggregate demand of the economy through monetary easing in the monetary policy announced at the end of his tenure. In addition, he mentioned that if there is no improvement in the real sector accordingly, financial stability may be at risk, and in such a situation, it is a challenge to achieve long-term financial stability while maintaining short-term ease.

Governor Adhikari has claimed that the various arrangements made through the monetary policy will keep the economy running and he has mentioned that all the troubled areas have been provided with ease. According to the experts, the arrangements which have been implemented in the monetary policy should be implemented before some time. According to them, the current system should have been implemented earlier because the economy has been running in the same way for some time.

Easy on capital
Various arrangements made by Nepal Rastra Bank through monetary policy have provided ease in capital fund to banks. Considering the pressure on the capital of banks and financial institutions, the Central Bank has made various arrangements with the intention of bringing more harmony between the monetary policy and overall regulatory arrangements. The National Bank has prepared to encourage the use of capital equipment and new equipment in the financial year 2081/82.

On the other hand, Nepal Rastra Bank has set a target of reducing the existing 1.20 percent loan loss provision for good loans and maintaining it at 1.10 percent. So that it will be easy in the capital fund. It is also expected that the National Bank will review the provisions related to risk weighting for loan purchase and sale and increase the limit of the existing regulatory retail portfolio from 20 million to a maximum of 25 million. Similarly, in the monetary policy issued by the governor, it is said, ‘When banks and financial institutions calculate Tier-2 capital, under the provisions of the Capital Education Framework, 2015, the appropriate reserve amounts in the regulatory reserve shall be calculated as Tier-2 capital so that the total capital fund is not more than twice the primary capital fund. The Central Bank has also stated that it will regularly monitor the impact of the new arrangements on the financial system.

The central bank’s claim that credit will expand
The National Bank has mentioned that the regulatory arrangements have been designed to maintain financial stability while emphasizing on lending to the productive sector and improving the quality of loans. Likewise, it has also stated that the identity between monetary policy and regulatory policies has been established to facilitate the flow of credit so as not to adversely affect macroeconomic stability.

Governor Adhikari has said that monetary policy will facilitate credit expansion of banks and financial institutions. Officials expect the market to become more active after credit expansion. He said that since the capital fund management regulations of banks and financial institutions have been relaxed, the loan is expected to increase.

We have implemented various methods and tools to manage the capital pressure in the banks. This will ease the capital pressure on banks and financial institutions,” said the governor. “Even though the banks and financial institutions had sufficient liquidity, they could not extend loans because they could not manage their capital. Facilitating it means increasing credit in the market. In the current year, we have set a target of 12 percent loan disbursement.

Similarly, the Central Bank has announced that liquidity management and lending will be directed towards the productive sector in order to help achieve an economic growth of 6.0 percent as estimated in the budget of the Government of Nepal for the fiscal year 2081/82. The Central Bank has said that the growth rate of comprehensive money supply for the financial year 2081/82 is projected to be 12.0 percent and the growth rate of loans to the private sector is projected to be 12.5 percent.

In view of the situation of low credit disbursement, the central bank has extended the time period for the provision of credit adjustment under the working capital guidance to be implemented from 1st July 2082. Also, the bankers said that as the limit of 10 million for micro, domestic, small and medium enterprises will be reviewed, the loan is expected to increase.

Although Governor Adhikari claimed that the monetary policy he introduced at the end of his tenure was flexible, some people are opposing it. Governor Adhikari had termed the issue of bad loans under the carpet in public forums some time ago. According to the experts, he should have introduced the same system as the current one at that time as well. Some people allege that the Governor Adhikari has played politics in monetary policy as well.

Banker happy, businessman sad
Bankers who are happy about the monetary policy every year are also happy this time. At a time when bankers are describing monetary policy as thoughtful and timely, energy businessmen, automobiles businessmen and real estate businessmen are angry about monetary policy. Businessmen are angry when the monetary policy does not address the sector which is considered as a part of the economy. Vesraj Lohani, chairman of Nepal Real Estate Business and Housing Development Committee, says that the monetary policy has not addressed their demands. “Even if only the loan to value ratio and credit ratio had been addressed by the monetary policy, the capital stuck in real estate would have been released and more positive impact would have been on real estate,” he said. He expressed the opinion that the monetary policy has become flexible, so it can have a positive effect to some extent.

Monetary policy has boosted morale
Chairman of Nabil Bank, Upendra Paudelle, said that the monetary policy has come at the right time. He mentioned that the monetary policy has come to provide relief to the banks and the customers of the banks as well, and it will push the current problems to some extent. He said that at this time all subjects should be agreed. He said that the central bank has made such an arrangement for a short period of time and it has increased the morale and said that the state should create various plans for the long term in this regard.

The problem now is that the capacity of businessmen is very low. The fact that the capacity is very low means that the people who are consuming have left.’ He mentioned that the flexibility adopted by the Central Bank during the formation period should not be used by banks and businessmen to spoil the system.