NRB takes proactive measures in monetary policy review to ease capital adequacy pressure on banks

KATHMANDU: In response to the escalating pressure on banks’ capital adequacy funds, the Nepal Rastra Bank (NRB) has introduced strategic measures through its mid-term review of the Monetary Policy 2023/24, unveiled on Monday.

Under the newly revised monetary policy, NRB has raised the threshold for the ‘regulatory retail portfolio,’ allowing banks to consider credits of up to Rs 20 million for agriculture and small, cottage, and medium enterprises.

Previously capped at Rs 10 million, this adjustment is anticipated to alleviate the strain on the capital adequacy fund.

Bankers welcome this move, highlighting that credits under the regulatory retail portfolio carry only 75 percent of the risk weightage, providing a potential relief to the banking sector.

Despite this adjustment, there are continued calls from bankers for the central bank to further increase the threshold to Rs 30 million.

Additionally, NRB has granted banks the flexibility to maintain a one percent interest rate difference on fixed accounts between institutional deposits and individual deposits.

Previously, interest rates on institutional fixed deposits were mandated to be two percent less than those on personal deposits within the category.

It is noteworthy that while these adjustments have been made to address capital adequacy concerns, NRB has opted to keep policy rates, including the cash reserve ratio and statutory liquidity ratio, unchanged. The provisions under the interest rate corridor have also been left unaltered.

These measures are part of NRB’s proactive approach to navigate the challenges faced by the banking sector and ensure the stability of the financial system. The effectiveness of these policy adjustments will be closely monitored as the banking industry grapples with ongoing economic uncertainties.