December 19: Nepal Rastra Bank (NRB) has directed banks and financial institutions (BFIs) to prepare necessary action plans to maintain the CD ratio within the prescribed limit. NRB issued the directive on Thursday, December 16. 

NRB has issued the directive according to its arrangements made in the first quarterly review of the monetary policy. NRB has directed that deposit mobilization and credit flow should be managed on a monthly basis in compliance with the CD ratio.

The NRB had abolished the provision of CCD ratio of 85 percent in the current fiscal year and had made provision of CD ratio up to 90 percent. At present, the CD ratio of most banks is above 90 percent. The banks and financial institutions have been told to maintain the CD ratio at 90 percent by mid-July 2022. Accordingly, banks will be able to disburse the loans beyond the prescribed limit of CD ratio for the time being.

According to the NRB, banks and financial institutions can make action plans accordingly. This will resolve the issue of credit flow. NRB has introduced such provisions to facilitate lending in some essential sectors.

Earlier, banks were seeking to increase the CD ratio to 92 percent. However, NRB has not increased the CD ratio but has facilitated its implementation. One of the officials of the central bank said banks should prepare an action plan to maintain CD ratio by mid July 2022.

"If the CD ratio of some banks is maintained at 91% but needs to extend the credit, the central bank will not prevent it from disbursing loans. It wouldn't be an issue if the CD ratio goes higher at present but it must be maintained within 90% by mid-July," he said. 

Also, when banks and financial institutions assign the evaluator for the purpose of valuing the collateral, their work, duties, rights and responsibilities should be clearly stated in the agreement. The evaluator should evaluate the property to be accepted as collateral independently, without any bias or prejudice, on the basis of international recognition and good practices, NRB stated.