Prudent Monetary Policy

The Nepal Rastra Bank (NRB) has unveiled the Monetary Policy for the upcoming Fiscal Year 2025/26. Featuring prominently on the policy are measures to expand private sector credit, manage non-performing loans (NPLs) and non-banking assets, and promote the share market. Amid growing liquidity in the Banks and Financial Institutions (BFIs), the NRB has announced to lower the bank rate from 6.5 per cent to 6 per cent and the deposit collection rate to 2.75 per cent from 3 per cent. Likewise, the policy rate has dropped to 4.5 per cent from the current 5 per cent.

By lowering the bank rate and the policy rate, the NRB has made it easier to borrow from banks and reduced the cost of credit in the economy, respectively. Adjustment in the deposit rate means less incentive to save and more incentive to invest or spend. These steps in combination can result in more liquidity in the market and higher demand. There's also good news for those who have invested in the share market. They can now take out loans up to Rs. 250 million by pledging shares as collateral. 

Likewise, the interest rate corridor has been slightly curtailed, boosting the prospect of a vibrant market economy.  Laws and regulations will be drafted to establish asset management companies to manage non-performing assets. The policy also aims for the effective implementation of the concessional loan mentioned in the government's budget statement for the FY 2025/26. 

There is also a new provision that will allow a male youth going for foreign employment to borrow up to Rs. 300,000 with or without collateral. Labelled 'deprived sector lending', the amount will be Rs. 500,000 in the case of women. This step is expected to be instrumental in facilitating those foreign job aspirants who, despite meeting all other requirements, have to forgo the opportunity to earn abroad for lack of an asset to be kept as collateral in the bank. 

To address the risks stemming from undesirable activities that officials have to contend with while recovering or regularising loans in compliance with the legal procedures, the central bank is launching a programme, "Nepal Rastra Bank with Borrowers." This initiative is expected to go a long way in dispelling negative feelings that some harbour against certain banks or the entire banking sector as a result of ignorance or based on rumour. Banks have been a bedrock of prosperity in the developed world, where the idea of bankrolling a project with potential to yield handsome returns and create wealth in the process has been immensely successful.

Additionally, in a novel move, the bank has announced a concessional loan to the businesses along the Mid-Hill Highway and Postal Highway that meet all the set criteria at a base rate plus a 2 per cent interest rate. By introducing this policy, the NRB has sent the message that it is ready to go the extra mile to stimulate business activities with great potential but lying dormant for lack of spurring funds. Once translated into action, this provision will energise the economy in the mid-hill region of the country, which is presently lagging economically behind most other regions. 

Also, BFIs will now be allowed to mobilise agriculture or business loans of up to Rs. 1 million by evaluating agriculture yields, land and business structure by themselves. This policy, when implemented in letter and spirit, holds the promise to give a new momentum to the economy by making it easier for struggling businesses to get much-needed loans, as well as those embarking on a new venture.