July 15: NRB has addressed the issues raised by private sector through the monetary policy for the upcoming FY. Addressing the demand of private sector, NRB has increased the limit of multi-bank loans to be converted to consortium loans to 1 billion from Rs 500 million. Private sector had been dissatisfied on previous NRB directive of converting multi-bank loan of Rs 500 million to consortium loan.

“We do not need to criticise monetary policy now. Our demands have been addressed,” said businessman Kamlesh Kumar Agrawal. Businessmen are pleased on fulfilled demand with no additional strategic mechanisms. NRB has also given concession to business sector on mandatory payment through cheque on transaction above Rs 5 million which has now reduced to Rs 3 million. Business sector believed that the provision will reduce the risk of cash economy and promote economy based on financial tools rather than based on cash.

Tightened valuation of shares

NRB has tightened extension of loans on share collateral. Now onwards, banks can extend loans up to maximum of 50 percent of the total value of share based on the average price of the share in the last 180 days or prevailing market price whichever is less. The provision will certainly reduce the loan amount investors are getting right now on share collateral.

“Investors were nervous on possible limitation NRB could set on loans provided by the banks. But as limit has been set on valuation of collateral, it might not have big effect,” said Anjan Raj Poudel, a share broker. As of mid-April, banks and financial institutions have extended less than 3 percent loans on the sector. However, NRB has sustained the same provision for BFIs on extending loans on share.

NRB has also tightened real estate loans. The banks can issue real estate loans up to 50 percent of the total value of the collateral. Earlier, such limit was 60 percent. However, NRB has kept the provision of issuing residential house loan up to Rs 10 million constant. Presently, the banks can issue such loans up to 60 percent of the collateral.

Investors of Microfinance disappointed

As expected by many share investors, the monetary policy has not formulated any mechanism for paid-up capital increment of microfinance companies. Investors were expecting 4 folds capital increment of national level microfinance companies and by 2 folds of other microfinance companies. However, NRB has increased minimum paid-up capital to Rs 600 million of the microfinance that provides retail loans by mid-July 2018. Based on the provision, only Sana Kishan Microfinance Company, RSDC, First Microfinance and RMDC have to increase their paid-up capital to Rs 600 million.

Apart from this, the monetary policy has also set the spread rate limit for microfinance companies in a bid to control loan interest rate. Micro finance companies will have to maintain maximum of 7 percent spread rate on their capital expenditure for loan extension. According to the third quarter reports, the companies have only 3-8 percent capital expenditure. Based on this, the loan interest rate in microfinance companies will limit to 15-16 percent. Dharma Raj Pandey, Chairman of Nepal Microfinance Bankers Association said that the mechanism will affect the microfinance sector. Presently, microfinance companies are criticised for charging above 22 percent interest rate on loans.