SC issues interim order against Monetary PolicyThe Supreme Court on Friday issued an interim order against the implementation of the Monetary Policy 2018-19 issued by Nepal Rastra Bank (NRB) in response to a writ filed by advocate Swagat Nepal arguing that the provision allowing banks to obtain loans in Indian currency should be removed.
The Supreme Court on Friday issued an interim order against the implementation of the Monetary Policy 2018-19 issued by Nepal Rastra Bank (NRB) in response to a writ filed by advocate Swagat Nepal arguing that the provision allowing banks to obtain loans in Indian currency should be removed.
Acting Chief Justice Deepak Raj Joshi, Justice Om Prakash Mishra, Justice Cholendra Shamsher Rana, Justice Kedar Prasad Chalise and Justice Ishwor Prasad Khatiwada issued the ruling, and asked the central bank to provide clarification within a week and appear for a discussion on July 27.
The Monetary Policy unveiled by NRB on Wednesday allows banks to borrow in Indian currency and convertible foreign currencies up to 25 percent of their core capital.
The central bank’s move is aimed at easing the shortage of loanable funds by injecting liquidity in the market. Assuming that the banking industry currently has a combined core capital of Rs320 billion, the new provision will allow banks to obtain loans amounting up to Rs80 billion from the foreign sector.
Advocate Swagat Nepal has argued that NRB’s new provision violates NRB’s Act to Provide for Enhancement of the Circulation of Nepalese Currency 1957. He pleaded that the new provision could bring instability in interest rates besides other problems if India demonetises its currency.
“It also violates the norms of the International Monetary Fund that allows maintaining Special Drawing Rights only in currencies such as the US dollar, pound sterling, euro, Japanese yen and Chinese yuan,” Nepal told the Post.
The central bank allowed commercial banks to borrow in convertible currency
from foreign banks based on the authority provided by the Foreign Exchange (Regulation) Act 1962 in April. A senior NRB official said the central bank had now allowed banks to borrow in Indian currency too as there was no risk of fluctuations in the exchange rate.
“Also, the new provision could help ease the shortage of Indian currency which is in high demand for trading with India as it is the major source of imports for Nepal,” the NRB source said.
- Cash Reserve Ratio reduced to 4 percent from 6 percent
- Spread Rate reduced to 4.5 percent from 5 percent
- Refinance limit increased toRs35 billion from Rs15 billion
- Deposit Guarantee limit increased to Rs300,000 from Rs200,000
- Banks do not need to take NRB’s approval to open branches in rural areas
- Individual overdraft limit reduced to Rs5 million from Rs7.5 million
- Education loan at 5 percent interest rate
- Interest Rate Corridor revised to 3.5-6.5 percent from 3-7 percent
- Broad Money Supply to be maintained at 18 percent
- Reduction in deposit collection limit from an organisation to 15 percent from 20 percent