Nepal Rastra Bank has made a policy to increase the profit of banks and financial institutions and discourage the purchase of electric vehicles. In the half-yearly review of the monetary policy of the current financial year, on Tuesday, banks and financial institutions have to arrange only one percent loss on good loans, they are allowed to keep up to 20 percent of the primary capital in foreign currency (non-deliverable forward) and invest abroad.

Previously, banks and financial institutions had to provide 1.10 percent loss on good loans, while only up to 15 percent of the primary capital was allowed to keep foreign currency and invest abroad. The tenure of Governor Mahaprasad Adhikari is ending from next Chait 25. So this review is the last of his tenure. 

Governor Adhikari, who introduced a tight monetary policy last year, comparatively introduced a flexible monetary policy this year. However, due to the failure of the expected improvement in the financial policy, the demand for loans did not increase as per the objective of the monetary policy, nor did the expected improvement in the financial sector take place. Although it is expected that the governor officer will be more liberal because of the final review, no new arrangements for real estate, stock market and other areas came in the review.

According to the new arrangement, it is enough for the bank to arrange only 1 percent loss on good loans. As a result of this, banks and financial institutions have to arrange less losses on good loans than before, on the one hand, their profits will increase and on the other hand, their ability to give loans will expand further, said Gunakar Bhatt, Head of Research Department of Nepal Rastra Bank. According to Bhatt, the arrangement made by the National Bank through the

review that allows banks to keep only 20 percent of their primary capital and invest in foreign currency will help banks to increase their income. He claims that the National Bank is trying to maintain the current macroeconomic stability through monetary policy. 

Macroeconomic stability must be maintained. There has been no change in the instrumental arrangement of the monetary policy to keep it strong,' said Bhatt, 'due to slow economic activity, the economic growth is lower than the average. In order to increase the economic growth, credit expansion has to be increased and for that, the ability of banks to give loans has been increased.' Bhatt claims that this arrangement has increased the lending capacity of the bank. Economist and former executive director of Rashtra Bank Nar Bahadur Thapa said that through the review of monetary policy, Rashtra Bank has introduced a policy to increase the profit of banks and reduce its own profit.

It seems that these arrangements are made to improve the financial condition of banks and encourage them to give loans. The most important arrangement is that now banks can invest more foreign currency abroad than before,' he said, 'on the one hand, this arrangement facilitates liquidity management and banks can invest 20 percent of the primary capital in foreign currency outside the country.'

“The existing loan loss provision of 1.10 per cent for good loans will be maintained at 1.0 per cent,” the review said. At present, banks and financial institutions had to arrange 1.10 percent loss on good loans. At present, bad loans of banks and financial institutions have increased and due to problems in loan recovery, the provision for losses has increased. The state has made such arrangements to reduce the pressure on the loss system due to bad loans.

Bhuvan Dahal, President of Nepal Bankers Association, said that the National Bank has done a good thing by returning the old system of providing only one percent loss on good loans. It is an old rule that one percent loss should be arranged for good loans, but it was increased in the middle. It should have been reduced earlier. It was reduced, it's good," he said, "The loan-to-value ratio of electric vehicles may have been reduced due to the increase in bad loans." 

In the past, banks could keep up to 30 percent of their primary capital in foreign currency and invest abroad. In the meantime, that limit was reduced to 15 percent. Dahal said that it has now been increased to 20 percent. "The limit of 20 percent of the primary capital was reduced, it should have been increased to 30 percent," he adds.

The chief executive officer of Krishi Bikas Bank, Govind Gurung, said that there was only a slight change in the monetary policy and it was good for the banks. “There has not been much change in monetary instruments. Provisions against losses on good loans have been reduced, while liquidity is high and investment opportunities are shrinking, the limit for investing foreign currency abroad has been increased, he said, 'This provision has given banks an opportunity to manage more liquidity.' Previously, there was a provision to keep foreign currency up to 15 percent of primary capital. "In the case of non-deliverable forwards, the existing limit of 15 percent of the primary capital will be increased to 20 percent," the monetary policy review said.

Microfinance financial institutions also have to determine the interest rate of loans based on the base rate. In the review, the National Bank has provided that starting from May 082, microfinance financial institutions should also determine the interest rate of loans based on the base rate. Until now, the base rate was not applicable in the case of microfinance institutions. Therefore, the National Bank has issued an instruction not to borrow more than 15 percent maximum for micro finance. After the implementation of the new regime, the limit of maximum interest rate of 15 percent will be abolished.

Similarly, although the recent trend of price increase has pointed out the need to increase the policy rate, the National Bank has stated that the cautious and flexible course of action taken while issuing the monetary policy for the current financial year has been kept unchanged due to the fact that the expansion of economic activities should also be kept as a high priority.