September 2: After the Nepal Rastra Bank increased the risk weightage to discourage investment in unproductive sector, banks have started reducing credit flow in those areas.

The increase in risk weightage has put pressure on the capital adequacy ratio of banks resulting in a decline in credit flow to the unproductive sector.

In the half-yearly review of the monetary policy of the last fiscal year, the NRB announced that it will review the risk weightage of loans on import as well as trust receipts, personal overdrafts, real estate loan, personal higher purchases and margin loans.

In line with the decision, the central bank announced in February that the risk weightage of personal overdraft and vehicle purchase loans, as well as real estate and share mortgage loans has been increased to 150 per cent, and the risk weight of Trust Receipt (TR) has been increased to 120 per cent. This new risk weightage has been implemented since mid-June.

Issuing a circular on August 3, the central bank has made arrangement for issuing 30 percent loan against collateral of land in case of Kathmandu valley and 40 percent outside the valley.

This provision will be applicable for renewing overdrafts or providing mortgage loans, property loans, personal periodic loans, and share loans.

With the new policy of the NRB, personal overdrafts, purchases of vehicles, share mortgages, and imports have started to decrease.

According to the data of the central bank, there has been a huge decline in the Trust Receipt loans, which are mostly used for imports. This loan, which increased by 48.7 per cent in the last fiscal year, decreased by 61.9 per cent recently. In addition to increasing the risk weightage, the NRB imposed a provision of cash margin on the import of some goods and the government also banned the import of luxury goods. Similarly, the NRB has cut the gold import quota by half.