Rashtra Bank Governor Vishwanath Paudel has very liberally introduced the monetary policy for the next financial year in order to speed up the economy when the economic activities are not becoming viable due to low market demand.

In the first policy of his tenure, Governor Paudel has emphasized on expanding loans in real estate, stock market, agriculture, industry and other sectors. 

Governor Paudel has been liberal in credit expansion saying that even though the long-term low interest rates and loanable amount (more liquidity) have accumulated in the banks, the government and citizens are not getting the benefits. He claims that through the implementation of the new policy, price and external sector stability and financial stability will be maintained and macroeconomic stability will be promoted, financial intermediation will be effective, financial inclusion will increase, the payment system will be more modern, safe and reliable and it will help to achieve the economic goals set by the government of Nepal. But some experts have analyzed that the financial stability risks may increase as many areas have been liberalized at the same time as they have not been able to protect the interests of depositors. 

According to Governor Paudel, the money that can be given in the banking sector (more liquidity) is continuously increasing and the interest rate is decreasing. He claims that because the average interest rate of deposits is higher than the average price growth rate, it can be profited. "The non-performing loan ratio of banks and financial sector and the number of non-banking assets and the number of those who are in the black list are increasing," he said. "The new system will facilitate capital investment."

It is mentioned in the monetary policy that the former governor Mahaprasad Adhikari will give many facilities which were given earlier during the covid and removed after two years. But many policies have been promised to be revised or reviewed. Therefore, experts say that the effect will be known only by how the relevant policy is modified.

Prakash Kumar Shrestha, ex-executive director of Rashtra Bank and member of National Planning Commission, says that since the economy is comfortable, some loose monetary policy is right, but it has become unnecessarily flexible in many areas at once. "There is also a risk that the financial stability and interest of depositors will be under pressure with the new system," he said.

It is mentioned in the monetary policy that the amount of 'regulatory reserve' created for the asset can be counted as supplementary capital for two years after the bank and financial institution realizes the non-banking asset. Shrestha said that this arrangement will increase the possibility of risking financial stability. Manoj Gyawali, Chief Executive Officer of Nabil Bank claims that this system will have a positive effect on the bank's supplementary capital and increase the capital fund ratio of banks and financial institutions and thereby increase the ability of banks to do business. 

It is projected that the credit flow to the private sector will increase by 12 percent for the coming year. Even though the National Bank is trying to encourage credit expansion, experts say that this projection is ambitious.

"The bank rate as the upper limit of the interest rate corridor has been reduced from 6.5 percent to 6 and the deposit collection rate as the lower limit of the interest rate corridor has been reduced from 3 percent to 2.75 percent," the policy says, "The policy rate has been reduced from 5 percent to 4.5 percent." This means that the money supply in the market will increase and the interest rate will decrease even more.

According to Chartered Accountant Analraj Bhattarai, monetary policy seems to be trying to turn the current pessimism into excitement. "Regulations such as revision of current capital loan guidelines, ease in capital funds of banks will have a positive effect on the market. But many commitments have been made that I will do this and that. How well they are completed, the improvement of the economy depends on that," he said. 

Chartered Accountant Bhattarai comments that the projection of 12 percent credit expansion towards the private sector for the coming year is ambitious. He also mentioned that depositors will be hit as the lower limit of the interest rate corridor is reduced. But the National Bank has said that it will issue bonds to manage liquidity. It remains to be seen how much it will help to prevent the interest rate from rising, said Bhattarai. 

The monetary policy has increased the loan limit for construction and purchase of private residential houses from 20 million to 30 million. It is mentioned in the policy that the loan-to-value ratio can be maintained up to a maximum of 80 percent for the construction and purchase of the first house and for others up to a maximum of 70 percent. This arrangement seems to help in making the real estate sector viable as both the size of residential loans and the loan ratio will increase.  In the

policy, it has been said that 'firms/companies related to land development and building construction registered and operating with an agency approved by the government of Nepal will be facilitated for restructuring and rescheduling for disbursed loans'. Bankers say that this arrangement will bring relief to the concerned parties when the 'real estate' businessmen are in trouble due to lack of demand, loans are not being repaid and there is no restructuring or rescheduling. In the monetary policy, it is mentioned that 'current capital credit guidelines will be modified as needed based on the nature of business and loan repayment-income cycle, including agriculture, small and cottage industries, education, health, sports, communication and media houses'.

It is likely that this arrangement will ease the current working capital loan guidance which is currently a headache for industrialists. Ex-governor Mahaprasad Adhikari has been receiving a lot of criticism due to issuing this guidance in the past. The new governor has tried to ease it through his first monetary policy.

It is said that the existing loan classification and loan loss system will be studied and reviewed as needed. "The following provisions will be made with the aim of improving the living standards of low and medium income households by facilitating credit in agriculture and small, domestic, small and medium businesses," the policy states, "Banks and financial institutions can provide agricultural or commercial loans up to 1 million after evaluating the collateral of agricultural crops, arable land and agribusiness structures by themselves, minimum credit losses will be provided during the grace period of such loans." This arrangement intends to prioritize small agricultural loans. appears. 

In the areas around Hulaki Highway and Madhyapahari Highway, some easy arrangements will be made in the loans to industrialists in the area to promote the hotels and restaurants with food hygiene classification logo (sign) from the Department of Food Technology and Quality Control and around the main market of the highway.

Accordingly, the Rastra Bank has stated that the loans of up to 30 million will be included in the loans to small and medium enterprises and will be counted as loans in the designated areas, and the loan will be provided by adding a maximum of 2 percentage points of premium to the base rate. 

The president of Nepal Bankers Association Santosh Koirala said that the monetary policy arrangement has given a lot of relief to the banks. Spread management becomes easier when the lower limit of the interest rate corridor decreases. The loan limit for construction or purchase of private residential houses has been increased. This will make the home loan sector viable, the bank's bad loans will decrease,'' he said, 'the existing system related to loan classification will also be amended, the share loan limit will be increased, and the existing system related to the CD ratio will be amended, so it will be a relief for the banks.' 

It is mentioned in the monetary policy that the arrangements regarding interest capitalization of the loans in the energy production sector will be reviewed. With this arrangement, the borrowers of the hydropower sector will get relief. It is said that the existing single customer credit limit of margin-type loans flowing from banks and financial institutions to share securities will be increased from 150 million to 250 million. Until now, individual share investors have taken up to 150 million share mortgage loan, now they can take up to 260 million. 

There will be policy facilitation in the existing system of blacklisting due to check dishonor. Due to check 'bounce', blacklisting is sought to be facilitated in the current system. It is mentioned in the policy that the necessary laws and regulations will be drafted and submitted to the Government of Nepal for the establishment of an asset management company to assist in the management of non-banking assets and non-banking assets of banks and financial institutions. 

The private sector has been very enthusiastic about the monetary policy arrangements. Chandra Prasad Dhakal, the president of Federation of Nepal Chamber of Commerce and Industry, argues that monetary policy is trying to improve the economy, which has not become sustainable. "Looking at the current situation, it seems that they want to make the market run and solve the existing problems of the economy," he says. 

In the analysis of Birendra Pandey, President of Nepal Confederation, the monetary policy has tried to improve the existing situation of the economy by making some flexible arrangements. "For the capital market, the personal share loan limit has also been increased, it is said to review current capital loans as well," he says, "it seems that the monetary policy is trying to give relief to small investors." 

Chamber of Commerce President Kamlesh Kumar Agrawal has seen the upcoming monetary policy as the beginning of a flexible policy. The system of rescheduling of loans gives relief to blacklisted entrepreneurs. It is said that the current capital loan guidance will be modified by looking at the nature of industry and business, this also gives relief, he said. 

According to the current arrangement, the existing arrangement regarding the distribution of dividends (cash or bonus) of more than 15 percent annually by microfinance financial institutions is going to be reviewed. Now most of the bonus limits are likely to increase.

"In the context of strengthening the electronic payment system, the existing branch expansion policy of banks and financial institutions will be reviewed," the policy says. From this, it seems that they want to tighten the physical branch expansion of banks and financial institutions.

Loans of up to 3 lakhs given to young people going for foreign employment with or without collateral can be counted as poor class loans and in the case of women, this limit will be fixed at 5 lakhs.

Nepali citizens visiting countries other than India are currently provided with facilities up to USD 2,500 per trip, but this facility has been increased to USD 3,000. Regarding the increasing contribution of remittance companies to the economy, the policy also mentions the classification of such companies on the basis of capital and turnover, legal and procedural arrangements for the establishment of 'Neo Bank' to expand financial access. 

Customer Identification (KYC) details of banks and financial institutions and other financial service providers will be facilitated through National Identity Card. It is mentioned in the monetary policy that after the customer has updated the details in any one bank, the necessary agencies can get it electronically for infrastructure development.

What difference did the new monetary policy make?

- loan limit for construction/purchase of private houses from 2 crores to 3 crores

- now private residential  Up to 80 percent of the purchase price when taking a loan 

– share loan limit from 15 crores to 25 crores 

- agricultural or commercial loans up to 10 lakhs

- cheap loans up to 30 million to small and medium entrepreneurs

- review of interest capitalization of loans flowed in the energy sector

- loose arrangements in working capital loans