Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: Nepal Rastra Bank (NRB) has issued a fresh circular directing banks and financial institutions (BFIs) to immediately implement the provisions outlined in the first-quarter review of the Monetary Policy, paving the way for changes in credit expansion, restructuring facilities, and interest rate adjustments.
With the review raising the ceiling for personal overdraft loans, BFIs can now issue personal overdraft credit of up to Rs 10 million, an increase from the previous Rs 5 million limit. The central bank believes this relaxation will support liquidity circulation and revive sluggish credit expansion in the banking sector.
The circular also introduces relief measures for businesses hit by recent floods and landslides, particularly in Ilam and other affected districts. Affected entrepreneurs will be eligible for one-time loan restructuring and rescheduling at a 10% interest rate. Borrowers must complete the restructuring process by Chaitra-end 2082, NRB said, adding that BFIs must maintain loan-loss provisioning based on the existing loan classification.
Amid persistent excess liquidity in the banking system and slow credit demand, the central bank has revised key policy rates. The Standing Liquidity Facility (SLF) rate has been reduced from 6% to 5.75%, while the policy repo rate has been lowered from 4.5% to 4.25%. The Standing Deposit Facility (SDF) rate remains unchanged at 2.75%. These revisions allow BFIs to further reduce lending and deposit rates, enabling banks to review interest rates twice within the month of Mangsir.
NRB has also removed the controversial interest cap imposed during former governor Maha Prasad Adhikari’s tenure, which required a one-percentage-point difference between institutional and individual fixed deposit rates. Banks can now set fixed deposit rates freely, although the overall system-wide interest rate cannot fluctuate by more than 10% at once, as per existing rules.
The microfinance sector also sees a major policy shift, with the ceiling for collateral-based loans increased from Rs 700,000 to Rs 1.5 million. Microfinance borrowers will now be able to revise repayment schedules, a move expected to ease access to credit in rural areas.
To address overcrowding of branches and the rise in digital payments, NRB has allowed BFIs to merge or consolidate branches located within metropolitan cities, encouraging operational efficiency amid growing digital banking activity.
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