KATHMANDU: Contrary to the expectation of a flexible monetary policy for the next fiscal year (FY) to revive the economy, the Nepal Rastra Bank (NRB) has indicated it will maintain a tight credit policy in the coming days. The central bank has expressed concerns that borrowing beyond capacity could create future economic problems and has signaled it will uphold its credit reform policies.

Industrialists and businessmen have called for more flexible policies concerning current capital and credit in sectors such as the stock market, real estate, and auto industry. However, during the 'Pre-Monetary Policy' program organized by the Society of Economic Journalists Association of Nepal (SEJON) on Tuesday, Nepal Rastra Bank’s Governor Maha Prasad Adhikari suggested that these demands were personal issues being generalized to influence monetary policy. He emphasized that borrowers already struggling with debt want the monetary policy to address their problems.

"Monetary policy has its limits," Governor Adhikari stated. "Debtors who have taken on excessive loans are still demanding more. Providing loans now could result in businesses failing next year. We need to understand the problem and move forward thoughtfully, rather than protesting for the sake of protest."

At the event, Rajesh Kumar Agarwal, president of the Confederation of Nepalese Industries, requested the postponement of the working capital loan guideline, suggesting it be implemented at a more appropriate time to boost credit flow and economic activity. He also recommended reducing the high-risk burden assigned to loans such as share mortgages and vehicle loans.

Governor Adhikari noted that current capital loan guideline is limiting businessmen from obtaining loans as needed. He explained that the central bank formulates monetary policy based on data and that the state's goal is to increase production, prioritize agriculture, energy, and support small and medium-sized businesses through targeted loans.

Finance Secretary Madhukumar Marasini mentioned that the government's budget for the next fiscal year aims to support a 6 percent economic growth target, and the upcoming monetary policy will align with these budget objectives. He highlighted that there are over Rs 600 billion of investable funds in the banking system, and the focus of future monetary policy will be on mobilizing this capital.

Economist Dr Bishwanath Poudel stressed the importance of directing available liquidity in the banking system correctly. He warned of the risks of loans intended for the productive sector being diverted to shares and real estate, which could lead to economic inequality and instability.

President of the Nepal Bankers' Association, Sunil KC, voiced concerns over continuous attacks on the banking sector. He pointed out that despite banks reporting substantial profits, the rate of return on capital is decreasing, with over 10 commercial banks currently showing negative distributable profits. "It is time to seriously consider whether the banking sector can sustain this situation indefinitely," he said.

Acting President of the Confederation of Banks and Financial Institutions Nepal (CIBIFIN), Rajesh Upadhyay, noted that everyone is closely watching the upcoming monetary policy. He identified the market's inability to accept the reform programs proposed by the central bank as a core issue.

Former banker Bhuvan Dahal commented that credit disbursement has not increased due to low business morale, despite sufficient liquidity in the banking system over the past 15 months.