July 19: Nepal Rastra Bank (NRB) has announced extension of loan repayment deadline for up to a year for businesses hard hit by the Covid-19 pandemic. Presenting the Monetary Policy for fiscal year 2020/21, NRB Governor Maha Prasad Adhikari said that the central bank has prioritised measures aimed at the reviving the pandemic economic affected sectors.

The Monetary Policy for FY2020/21 has received warm welcome from the business sector. Stakeholders have said that the central bank has addressed demands of business associations of various sectors and has incorporated their suggestions in the policy. However, economists and bankers have said that the targets in the monetary policy are challenging to achieve.  According to Ganesh Raj Pokharel, CEO of Citizens Bank International, the central bank has taken measures with a view to help both bankers and businesspersons survive during the current crisis. Meanwhile, banking expert AR Bhattarai doubts on the bank’s target to keep inflation rate within the 7 percent range. Bhattarai also views the lending expansion target of 20 percent in the current fiscal year 2020/21 in the monetary policy as challenging. “The target set for the current year is ambitious because last year the lending expansion in the private sector was 10 percent,” said Bhattarai, adding, “Other targets in the monetary policy can be achieved because directive work procedure which comes after the policy further manages and implement it.”

Extension of Loan Repayment Deadline

Businesses in tourism, manufacturing, education, communications, healthcare, education and entertainment are entitled to receive the loan restructuring and rescheduling facilities.  NRB has put businesses in categories of low, medium and highly affected for repayment of loans. The deadline for repayment of interest and principal amount for such businesses has been extended from 6 months to a year. As per the arrangements, highly affected businesses can repay their loans by mid-July 2021 while the deadline has been extended to mid-April 2021 for medium affected and mid-January 2021 for low affected businesses. Likewise, the repayment deadline can be extended to more than a year for those businesses needing reestablishment in sectors like tourism.

Besides, NRB has also announced refinancing facility, extension of grace period for infrastructure projects and targeted lending for productive sectors at lower interest rates to aid the process of recovery.  Similarly, NRB has prioritised lending to small and medium enterprises (SMEs).

Lending Capacity of Banks in Doubt

NRB has increased the credit-to-core capital-plus-deposit (CCD) ratioto 85 percent from 80 percent. According to Bhattarai, the arrangement will add an average of Rs 120 billion additional liquidity in the banking system. Nevertheless, Bhuvan Kumar Dahal, president of Nepal Bankers’ Association (NBA) argues that the existing problems in expansion of loans cannot only be resolved by increasing CDD ratio. “The situation of liquidity will ease to some extent, but it won’t increase the banks’ ability to expand loans. The 20 percent net liquid asset should also need to be addressed. The lending capacity of banks will increase only if both issues are addressed,” he opined. Dahal viewed the restructuring and rescheduling of loans to support the pandemic-stricken business sectors as a positive step to face the challenges created by the Covid-19 crisis. “However, the measures will impact income of banks,” he mentioned.