April 5: Nepal Rastra Bank (NRB) has unofficially instructed commercial banks to avoid opening letter of credit (LC) for the imports of luxury items including vehicles.

Officials of the central bank on Monday summoned the chief executive officers (CEOs) of all 27 commercial banks and issued such instruction verbally. The central bank decided to issue such instruction due to the continuous decline in foreign exchange reserves.

According to informed sources, NRB does not have enough foreign exchange to support the imports of even six months. CEO of a commercial bank said that the NRB has instructed them unofficially to not open LCs for imports of luxury items including vehicles.

“Now we will follow the instructions given by the central bank,” said the CEO requesting anonymity.

NRB cannot issue a formal instruction to stop LC. That is why the central bank called the CEOs of all the commercial banks and issued the unofficial instruction. Central Bank officials say that opening of LC can be resumed after the situation improves. NRB also asked the commercial banks to bring the CD ratio below 90 percent. NRB has already made arrangements to keep cash margin for opening LCs to import dozens of items.

Dev Kumar Dhakal, head of the Supervision Department of Nepal Rastra Bank, Dr. Prakash Kumar Shrestha, head of the Research Department, and Ramu Poudel, head of the Foreign Exchange Department and CEOs of the commercial Bank held discussions over the issue on Monday.