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Wednesday, February 20, 2019

NRB reduces interest cap on refinancing loans

Kathmandu, February 20

The Nepal Rastra Bank (NRB) today directed banks and financial institutions to bring down the maximum interest rate on loan disbursed under the general refinancing facility to eight per cent from previous nine per cent.

The central bank has also directed banks and financial institutions to reduce interest on export refinancing loan to three per cent from existing 4.5 per cent and spend 10 per cent of the fund allocated to fulfil corporate social responsibility in each of the seven provinces to promote financial literacy.

These instructions were given through a circular issued today. The new provisions were introduced as per the proposal made through the revised version of the Monetary Policy released on Monday evening.

The revised version of the Monetary Policy has also proposed to bring down the share of call deposit in total deposit to 10 per cent; widen the refinancing pool to Rs 50 billion from existing Rs 35 billion; and put a ceiling on interest premium on loans extended to the productive sector.

The Nepal Bankers’ Association (NBA), the umbrella body of commercial banks, has expressed dissatisfaction over few provisions included in the revised version of the Monetary Policy, including the decision to revise the formula to calculate interest spread. These changes, the NBA said, will increase interest volatility.

The central bank has proposed to use the difference between weighted average lending and deposit rates to derive interest spread. “If the return on investment is separated from the interest spread calculation formula, it will make it difficult for banks to cover their expenses,” says a statement issued by the NBA. Banks are required to bring down interest spread to 4.75 per cent within mid-April and to 4.5 per cent within mid-July from existing 5 per cent.

The NBA has also objected to the central bank’s decision to bring down the share of call deposit in total deposit to 10 per cent. “This provision will promote unhealthy competition in attracting deposit and push up deposit rates,” said the NBA statement without elaborating.

The NBA has also objected to the NRB’s decision to put a ceiling on premium that is added to the base rate to derive the lending rate. “The market should be allowed to determine the interest rates,” said the statement.

The post NRB reduces interest cap on refinancing loans appeared first on The Himalayan Times.



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