NRB's policy to increase interest rates hit creditors: NCC

By A Staff Reporter, Kathmandu, Aug. 12: Nepal Chamber of Commerce (NCC) warned of a deterioration in business environment and country’s economy due to the policies adopted by the Nepal Ratra Bank (NRB) in the new monetary policy.

Issuing a press statement, NCC said that those who want to take a loan from banks and financial institutions and small borrowers are the most affected.

It said that the draft of the working capital loan guidelines 2078 issued by the NRB shows signs of tightening the working capital, which will have serious repercussions on business facilitation and investment-friendly environment.

The NCC said that most of the policies of the central bank are only suitable for the banking institutions instead of creating a business environment in the country.

It said, “The limit of working capital loan up to Rs. 10 million is only up to 20 per cent of the sales, the balance is not enough to keep the current proposed limit for long-term sales on credit and only 50 per cent for the goods sold during Dashain and Tihar. 

This limit should be maintained up to 50 per cent of the annual turnover.”

The Chamber has also requested a review of the interest rate as the borrowers are extremely troubled by the monetary policy of the NRB.

It said that due to the abnormal increase in the base rate, loans with fixed income have been affected the most.

The Chamber has said, "The borrowers who had taken loans at a fixed interest rate before are facing more problems due to the policy of the NRB. When the base rate increases unnaturally, it has hit the borrowers."

Small borrowers who have taken loans at 8 to 10 per cent interest by showing a certain source of income have become very discouraged when the interest rate suddenly reached 15 per cent. 

It is necessary to focus the attention of the NRB on this matter.

The limit of up to 2 per cent in case of industries using domestic raw materials and 4 per cent in others will affect the business activities and increase the prices, as opposed to the previous arrangement of 1.5 per cent base rate, it said.

According to the NCC, if the target of credit expansion is also reduced, contrary to the expectations of flexible policy, the economy will shrink.

It will be difficult to achieve a growth target of 8 per cent and limit the inflation to 7 per cent when the interest rate is increased by reducing the cash flow and reducing the target of credit flow.

The Chamber believes that the private sector should increase its activities to make the economy sustainable, but due to the monetary policy, there may be a contraction and it will also affect employment creation.