With the aim of reducing interest rates, disbursing loans and providing relief to banks affected by bad loans, the National Bank has announced a liberal monetary policy for the coming financial year. On the one hand, interest rates are very low, on the other hand, there has been more liquidity in the financial system for a long time. However, Governor Vishwanath Paudel has claimed that the government and the citizens are not able to benefit from the new policy and the borrowers, banks and the government can benefit from it.

The private sector is happy with the monetary policy. However, it is difficult to say whether output, productivity, employment and income will increase after the new policy. Since monetary policy can improve the supply side of the economy, the main role of improving the demand side is the fiscal policy (budget).

Monetary policy appears to be very liberal for real estate, stock market, agriculture, small entrepreneurs and very flexible for banks and financial institutions. The government will improve the financial policy through the effective implementation of the provisions introduced in the budget and if the provisions introduced in the monetary policy are followed literally, the expected improvement in the economy will come. Therefore, now Nepal Rastra Bank's entire focus should be on recommending the government to improve the financial policy and implementing a flexible monetary policy.

Through monetary policy, the National Bank has reduced the lower and upper limits of the interest rate corridor by 0.5 percentage points. This further lowers deposit interest rates, piles up loanable funds in the market and increases banks' profits. Since the interest rate will be low, this arrangement will lead to the risk of depositors and also the possibility of capital flight to countries including India. If the loan demand increases, then it is fine, the interest rate will also start to increase gradually. This year is a strong proof that even when the interest rate is low, the loan is not disbursed. Therefore, a big push in the economy seems necessary for more credit expansion.

The loan limit for the construction and purchase of private residential houses has been set at 20 million to 30 million. When taking a loan for construction and purchase of a first house, a maximum of 80 percent of the value of the property is available and in case of other loans, a maximum of 70 percent is available.

The maximum limit of personal loans flowing from banks and financial institutions to share securities has been set at 250 million. Classification of existing loans and loan loss arrangements will be studied and reviewed as necessary. Agricultural or commercial loans up to 10 lakhs, minimum loan loss has been provided during the grace period of such loans.

It seems that the provision of cheap interest rate loans to encourage small agricultural loans, including the inclusion of loans of up to three crores in loans to small and medium enterprises and counting them as loans to designated areas. 

Rastra Bank has introduced a policy that allows the amount of regulatory reserve created for the said assets to be counted as supplementary capital for two years after the realization of non-banking assets of banks. This arrangement increases the credit expansion capacity of the banks as it relieves the capital fund of the banks.

It is said to draft the necessary policies for setting up asset management companies to manage bad loans. But this topic is from decades ago. When bad loans increase, this issue is discussed and when it decreases, it is celebrated. If the bad loans of the banks are not reduced, if they are pressured again to aggressively expand the loans, the overall financial stability may be affected as the quality of the loans will deteriorate. 

The National Bank has said that it will review the current capital loan guidance, which is the main interest of the private sector. Similarly, it is mentioned that the guidelines related to current capital loans will be modified as needed based on the nature of business and loan repayment-income cycle, including agriculture, small and domestic industries, education, health, sports, communication and media houses. Although it is not clear about the

amendment, it seems that it is trying to facilitate the working capital loans flowing in the mentioned areas. It is said to review the arrangements related to capitalizing the interest of loans given in the production sector. With this arrangement, the borrowers of the hydropower sector will get relief. It is mentioned that there will be policy facilitation in the existing system of blacklisting due to dishonoring of cheques.

It is inevitable that the mentioned arrangement should be fully implemented along with the effective regulation and supervision of banks and financial institutions. But it is not that easy. For almost two years, an average of 6 trillion has been accumulating in banks and financial institutions every month. The National Bank has to spend a large amount of money for liquidity management.

Now it is necessary to create an environment in which that investable amount flows into the market. A target of 12 percent loan expansion has been taken next year. This year's target of 12.5 percent credit expansion, barely 7 percent flowed, the next year's target is also very ambitious. Because for that, 6 and a half billion additional loans have to be extended.

At present, the external indicators of the economy are very strong, but the domestic economy is not improving as expected. In order to make the economy viable, there are many problems that need to be avoided. Broad reforms are needed in capital expenditure and tax administration. Under construction projects should be completed and the effectiveness of government subsidy programs should be increased.

The economy's dependence on remittances has increased significantly. However, neither the government nor the National Bank has an effective program to utilize remittances in the productive sector. If the policy is too flexible, there is a risk that NEPSE, the stock market gauge, will be removed, many loans will go to non-productive sectors including real estate, investment in productive sectors will not expand and jobs will not be created again. Now the main problem of the economy is on the demand side.