February 22: Nepal Rastra Bank has attempted to provide relief to the productive sector of the country through the amendment of monetary policy of the current FY. The big industrial projects were in problem due to the abnormal increase in interest rate of loans caused by lack of liquidity in banking system since last few months. Moreover, credit to core capital-cum-deposit (CCD) ratio of few banks have exceeded NRB limit due to excess investment in unproductive ratio.

On the backdrop of crisis of investable capital and the problems caused by liquidity crisis on bankers and industrial sector, the affected sectors had demanded amendment on monetary policy. NRB, that was reluctant of amendment initially, came up with certain flexible monetary policy tools after studying the problems.

The new mechanism provides some degree of relief to banks and industrial sector, however, it has tighten the trade. Citing that the banks have extended excessive loan to unproductive sector, the bank has declined the limit of overdraft loan to minimise the trend. According to NRB, it formed the new mechanism to obstruct the possible contraction in economical activities due to the adverse effect on industrial sector which is the backbone of the economy.

NRB, through publishing the mid-yearly monetary policy on February 21, set the limit of overdraft and revolving natured personal loan facility to Rs 7.5 million from Rs 10 million. Earlier, banks and financial institutions (BFIs) were extending loan up to Rs 10 million to one person. The central bank has directed to implement the decision within the end of current FY.

Moreover, the published monetary policy has adopted a policy to discourage loan extension in unproductive sector. The bank in order to discourage loan extension in unproductive sector reduced the limit of OD loan. Moreover, the bank has also reduced the loan limit of auto loan. As per the newly published monetary policy, BFIs can now grant loan up to 50 per cent of total value of the auto.  Earlier, BFIs were providing auto loan up to 90 per cent of the total value.

Similarly, the monetary policy has extended the time for TR loan under which BFIs can provide loans on bills, discounting and other similar natured loans for maximum of 150 days.

Likewise, the mid-term monetary policy has given extra time to BFIs to implement loans to deprived community. The bank has extended the time limit to extend 2 per cent deprived community loan by the end of FY 2074/75.