NRB Governor emphasises easy credit to deprived communities

By A Staff Reporter,Kathmandu, July 7: Governor of Nepal Rastra Bank (NRB), Dr. Biswo Nath Poudel, has emphasised the need to ensure credit access for the poor and deprived communities.

Speaking at a 'Pre-Monetary Policy Discussion' organised by the Society of Economic Journalists-Nepal (SEJON) on Sunday, Governor Poudel said that many classes and communities in the country do not have access to credit, adding that everyone should have the right to credit. 

He acknowledged that despite the country’s recovery from major shocks like the earthquake and the COVID-19 pandemic, many classes and communities still struggle to access affordable financial services.

Governor Poudel also highlighted the growing concerns over rising non-performing loans (NPL), especially in priority sectors such as agriculture and SMEs. 

“The bad loans in the agriculture and small and medium enterprises sectors, where we want to see more credit flow, have increased. We must focus on resolving this issue rather than crafting monetary policy only for big entrepreneurs and businesses,” he said.

He said that preparations are being made to introduce a monetary policy for the upcoming fiscal year 2025/26 by keeping the problems of agriculture and small and medium industries at the centre and taking all other sectors along with them.

“During instability, all sectors are affected, so we should take everyone up as much as possible. We should be careful not to create one group of rich people and another group of farmers and small entrepreneurs. Everyone should have the right to credit, everyone should have access to it.”

He said that the issue of solving the problems seen in the country's overall economy and financial sector is not in the hands of the central bank alone. 

He, however, said that the upcoming monetary policy will focus on the sustainable development of the economic sector by including and uplifting all sectors, classes and communities.

He emphasised that it is imperative to expand investment in large infrastructure sectors such as energy, roads, and bridges by taking the lead in solving the current problems.

Stating that he is clear about the need for coordination between fiscal policy and monetary policy, Governor Poudel said that the fiscal policy should take the lead while supported by monetary policy for the overall improvement of the economy.

President of Nepal Bankers' Association Santosh Koirala said that it is essential to establish an asset management company as a powerful and empowered body. 

"Currently, banks are working as asset management companies themselves. In a situation where banks alone are unable to solve the problem, we need an asset management company as a powerful body," he said.

He expressed his hope that the NRB would introduce flexible monetary policy to resolve the existing problems such as NPL.

President of Confederation of Banks and Financial Institutions Nepal (CBFIN) Uprendra Prasad Poudel said that the existing problem seen in the BFIs should be resolved through joint efforts of the banks, the private sector, NRB and the government, as any problem in the banking sector will lead to problems in the country's overall economy. He said that the gradual increase in non-performing loans of banks and financial institutions is becoming a challenge and this should be addressed by analysing investments in agriculture and small and medium enterprises, which have high levels of non-performing loans.

On the occasion, former Chief Secretary Dr. Baikuntha Aryal said that the government has always claimed that it has brought an expansionary fiscal policy.

However, he said that the private sector has been facing more problems due to the lack of policy stability. 

“The government has always said that it has brought a reform-oriented and expansion-oriented fiscal policy, such as increasing the tax rate, and that monetary policy should support the path taken by fiscal policy to increase production and productivity, but we have not had policy stability,” Aryal said.

Senior Vice President of the Confederation of Banks and Financial Institutions Nepal, Rajesh Upadhyay said that decline in disposable income is a main reason behind the failure of credit increase despite low interest rates. “Our expenses have increased, but income has not increased, and consumption of the consumer has decreased due to youth migration,” he said. He argued that although the working capital loan guidance was necessary, it did not come at the right time. 

Similarly, he said that the legal provisions related to debt recovery are strict and should be relaxed

Economist Dr. Sameer Khatiwada said that as the main function of the central bank is to control inflation, in some cases there is a contradiction with the fiscal policy. 

He emphasised that there should be autonomy in the work of the central bank. Economist Dr. Menuka Karki said that monetary policy arrangements have not been made to coordinate fiscal policy and a situation has arisen where the economy has to rely more on monetary policy to improve.