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The National Bank has issued instructions on Wednesday for the implementation of the new arrangement made through the third quarter review of the monetary policy of the current financial year. In the review, the National Bank reduced the risk weight of share loans and maintained it at 100 percent.
The National Bank has set a risk weight for the sector where banks and financial institutions provide loans. Risk weights are assigned high in high risk areas and low in low risk areas. Banks and financial institutions provide more loans in areas with high risk load and in areas with low risk load. Therefore, it is analyzed that when the national bank increases the risk burden, it tightens the credit expansion in the related sector and becomes flexible when it decreases.
There is no stable policy of Rashtra Bank regarding share loans. Rashtra Bank, which has been adopting a flexible and sometimes loose policy, has now reached the situation it was in four years ago. Nepal Rastra Bank has started issuing unified instructions since 2067. At that time, the risk weight of all loans flowing into share securities was 150 percent. On December 11, 2007, the system was amended and the risk weight of share loans was made 100 percent. On February 11, 2018, the risk weight was increased to 150 percent due to aggressive loan expansion after the Covid infection. In 2079, the risk weight for share loans up to 25 lakh rupees was 100 percent and for all others 150 percent. In 2008, 100% risk weight was raised for share loans up to 50 lakh rupees and 125% for all others. Now this system has been modified and the risk weight of share loan has been fixed at 100 percent.
Similarly, through the review of the monetary policy, the National Bank has also implemented a new provision regarding the mandatory cash balance (CRR) calculation of banks and financial institutions.
At present, banks and financial institutions must maintain four percent CRR. This arrangement remains unchanged. However, when calculating that the banks have not maintained the CRR, the National Bank tests every 14 days, at that time the banks must maintain at least 70 percent of the 4 percent amount. Through the review, the National Bank increased the limit from 70 percent to 90 percent. Until recently, banks maintained only 70 percent of the 4 percent CRR as directed every 14 days, but now they have to maintain 90 percent. The new arrangement is tough for the banks while it is easy for the National Bank. Because until now, banks used to show 70 percent cash, while the remaining 30 percent were charging interest by keeping short-term deposits (SDF) in Rashtra Bank, saying they were more liquid. The new system has curbed the income received in this way.
