The Federation of Nepalese Chambers of Commerce and Industry (FNCCI) has stated that the monetary policy for the coming fiscal year should focus on improving the country's investment environment and capital mobilization. The federation emphasizes that monetary policy should improve the investment environment and facilitate capital mobilization due to the fact that despite low interest rates, loan demand has not increased and banks have accumulated excess liquidity.

Suggesting to the Finance Committee under the House of Representatives for monetary policy, the federation has suggested that a policy should be formulated to address the current challenge of the economy, not only interest rates, but also investment demand and capital mobilization.

Presenting the suggestion at the Finance Committee meeting on Sunday, FNCCI President Anjan Shrestha emphasized that monetary policy should increase the confidence of the private sector as the internal economy is still weak despite the strong external economic indicators of the economy.

Currently, foreign exchange reserves have increased by 38.3 percent to a level that can cover 19.2 months of goods and services imports, the balance of payments is in savings of Rs 863 billion, but there is a contraction in demand for credit, and more than Rs 1.4 trillion of investable funds (liquidity) have accumulated in the banking system, but private sector credit flow has decreased from 7.3 percent to 5.7 percent, said Chairman Shrestha.

‘The main problem now is not the low interest rate, but the limited ability of banks to provide credit.’ As the core capital ratio of many banks has reached the minimum limit, the Rastra Bank should adopt flexibility in capital adequacy and provisioning arrangements,’ he said.

Chairman Shrestha has presented various suggestions on non-performing asset management, working capital loans, loan restructuring and classification, concessions to the productive sector, and digital banking and payments.

‘The NRB has already reduced the policy rate, SDF and SLF rates, and the deposit interest rate has also reached a historically low level,’ he said, ‘but despite that, credit expansion has not increased as expected, and a large amount of liquidity has been idled in the banking system.’ The federation suggests that the main demand of the private sector now is not to further reduce interest rates, but to strengthen the mechanism through which the impact of monetary policy reaches the real economy and restore the credit flow capacity of banks.

It is not that banks are reluctant to lend at present, the capital capacity required to expand credit is becoming limited. The core capital ratio of many banks and financial institutions has reached close to the regulatory minimum limit. In such a situation, even if there is demand for credit, there is a risk of violating the regulatory limit by providing additional credit. If the NRB wants to accelerate credit expansion, it is necessary to focus on capital adequacy above the interest rate, realistic flexibility in the provisioning system, and capital relief measures.

Similarly, billions of rupees worth of seized and dormant assets owned by banks have been left out of the productive economy. If such assets can be redeployed in the economy through sale, rental, lease or asset management companies, the lending capacity of banks can increase significantly. This issue has been under discussion for many years, and now it is necessary to take it to the implementation stage, the federation has stated.