Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: Nepal Rastra Bank (NRB), under newly appointed governor Bishwa Poudel, has introduced a more flexible approach to share-backed loans in its third quarterly monetary policy review for fiscal year 2081/82, released on Sunday. The review reduces the risk weight for share loans from 125% to 100%, signaling easier access to credit for stock market investors. This move, announced four days after Poudel’s appointment on May 20, aims to stimulate lending amid ample liquidity in the financial system.
NRB assigns risk weights to guide bank lending, with lower weights encouraging credit in less risky sectors. The uniform 100% risk weight for share loans reverses earlier restrictions, aligning with policies from December 2018.
Historically, NRB’s stance on share loans has fluctuated. In 2010, the risk weight was 150%, reduced to 100% in 2018, then raised to 150% in 2022 post-COVID due to aggressive lending. Subsequent adjustments in 2022 and 2023 set tiered risk weights, but the latest review standardizes them at 100%. “This reduction balances the policy to encourage share loans,” said NRB spokesperson Ramu Poudel.
Despite a 37.8% surge in share loans (NPR 34.02 billion) in the first nine months of this fiscal year—compared to 13% growth last year—the Nepal Stock Exchange (NEPSE) has not reflected proportional gains. Bharat Ranabhat, former president of the Nepal Stock Brokers Association, noted that share loans, often called margin lending, lack mandatory investment in stocks, leading to their diversion to other sectors. This may explain the stock market’s lackluster performance despite increased lending.
The review also tightens liquidity management by raising the Cash Reserve Ratio (CRR) compliance threshold. Banks must maintain a 4% CRR, with NRB verifying compliance biweekly. The minimum CRR holding has increased from 70% to 90%, limiting banks’ ability to earn interest on excess liquidity deposited with NRB. This change aims to enhance financial system stability.
NRB plans to align regulations with recent amendments to the Foreign Exchange (Regulation) Act, 2019, and the Foreign Investment and Technology Transfer Act, 2075, and update cheque dishonor procedures under the Banking Offence and Punishment Act, 2064.
Policy rates remain steady, with the repo rate at 5%, deposit rate at 3%, and bank rate at 6.5%. NRB’s balanced approach considers inflation, foreign exchange reserves, and economic activity, with further adjustments expected in the annual monetary policy to address ongoing challenges in the banking and stock sectors.
Your email address will not be published. Required fields are marked *
Comment *
Name *
Email *
Website
Save my name, email, and website in this browser for the next time I comment.
