Nepal Rastra Bank (NRB) has tightened credit flow on a personal overdraft, purchase of personal vehicles, real estate, shares and other sectors. NRB had announced to tighten the credit flow in those sectors through the mid-year review of monetary policy. The bank on Wednesday amended the integrated directive to increase the risk burden in those areas.
As the risk burden increases, the banks will have to arrange additional capital (capital fund ratio) when disbursing credit to the specified area, thus reducing their credit flow capacity. The cost of the bank increases when additional capital is required. As costs increase, banks increase interest rates on loans. In this way, the credit of that sector becomes comparatively expensive. Therefore, NRB has adopted a policy of tightening the credit to the low productive sector through risk burden. NRB has doubled the risk burden in the specified areas.
Through the directive, NRB has increased the risk burden of personal overdraft loans to 150 percent. Earlier, such load was 75 percent.
Similarly, the burden of personal hire purchase loan has also been increased to 150 percent, earlier such burden was 75 percent for individuals and 100 percent for institutional companies.
The risk weight of share loan has also been increased to 150 percent and the burden of trust receipt loan has been increased to 120 percent. Earlier, both the loans were 100 percent risky. The share loan burden was reduced from 150 last year to 100 percent.
NRB, which has increased the risk burden in the mentioned areas, has become somewhat flexible in the flow of credit to the priority sectors. As per the directive, it was mandatory for commercial banks to disburse at least 15 percent of the total credit to the agricultural sector by 2080 BS. Similarly, by 2081, 10 percent of the total loan for energy and 15 percent for the poor (less than one crore) was allowed to flow.
Now the banks have till 2082 to repay the loans of all the mentioned sectors. This arrangement seems to bring some relief to the banks. Thus, by tightening the flexibility in the productive sector and the unproductive sector, NRB seems to want to focus more credit on the priority sector.
NRB has tightened the rules on buying and selling shares of founders of banks and financial institutions. Now, the shareholders who hold or have held one percent or more founding shares of a bank or financial institution have to get the approval of NRB before buying or selling any founding shares of any bank or financial institution other than that institution.
Similarly, the bank has also made policy arrangements to issue energy loans to the Infrastructure Development Bank. NRB has also issued instructions to regularly update the details of energy projects invested from the amount collected by issuing bonds.
