The monetary policy 2021-22 presented by the Nepal Rastra Bank on Friday has sought to help enterprises and individuals hit hard by the Covid-19 pandemic by extending the deadline of paying loans and offering subsidized loans and refinance facilities.

For the second year in a row, the main focus of the monetary policy has been on relief and recovery of economic sectors affected by the pandemic amid the looming third Covid-19 wave.

Tens of thousands of people have lost their jobs ever since the pandemic began, shaking the country’s economy massively.

Central bank governor Maha Prasad Adhikari said that the new monetary policy has sought to balance the need for monetary relaxation [creating a situation for more credit expansion] to rehabilitate the sectors affected by the Covid-19 pandemic and the need for monetary tightening to maintain economic and financial stability.

The monetary policy presented nearly a month after the new fiscal year began and after the change in the government, has sought to provide relief to borrowers affected by the pandemic with the extension of repayment deadline, reduction of installment amount, and restructuring and rescheduling of the loans.

According to the policy, the sectors including restaurants, party palaces, public transportation, educational institutes, and entertainment venues badly affected by the pandemic, can get their loans extended by one year if they were required to pay those loans by mid-January next year.

They can also pay the loans in at least four installments, according to the central bank.

Likewise, sectors including tourism, movie, party palaces, public transportation and educational institutes can get their loans restructured and rescheduled within mid-January next year.

According to the central bank’s policy, people who failed to pay the installment of the lockdown period can now pay the loans by mid-January next year.

Banks and financial institutions need to maintain a separate account of interest to be paid by hotel, travel, trekking and aviation sectors till the end of the current fiscal year and no penal interest or fine can be imposed on such interest. Public transport operators can get loans up to Rs200,000 per vehicle for repair and maintenance.

Even in the last fiscal year’s monetary policy too, the central bank had extended the deadline for paying loan installments by six months, nine months and one year, depending on the degree of impact on the particular sector as the central bank sought to ease the pains on businesses caused by the pandemic.

Even though Governor Adhikari had hinted at a less facilitative monetary policy for the current fiscal year in a recent interaction organised by Kantipur, the Post’s sister paper, the monetary policy unveiled on Friday has kept most of the facilitative measures taken in the last fiscal’s monetary policy intact.

For example, refinance facilities and business community credit schemes have been continued. With the central bank offering to provide over Rs200 billion in refinance facility, it received a massive response from borrowers with the central bank paving the way for small borrowers to get such facility.

As many as 48,890 borrowers received Rs148.75 billion in refinance which is a mechanism to exchange the borrowers’ loans with cheap interest loans.

The monetary policy has sought to increase deprived sector lending even though lending in the sector is also already above the threshold set by the Nepal Rastra Bank. As per the current provision, banks and financial institutions need to lend at least 5 percent of their lending in the sector, but as of last fiscal year such lending is 7 percent, according to the central bank.

The monetary policy has now allowed lending up to Rs1.5 million to tourism sector workers who lost jobs due to the pandemic, up to Rs2.5 million who purchase vehicles for self-employment, credit up to Rs2 million to women entrepreneurs against the collateral of the project and agriculture credit up to Rs2 million against the collateral of the project to be counted as deprived sector lending.

Umesh Prasad Singh, acting president of the Federation of Nepal Cottage and Small Industries, said the monetary policy has addressed most of the issues of cottage and small-scale industries.

“The loans provided to the agriculture and tourism sectors and women entrepreneurs have increased the access of marginalised people to credit,” he said.

The monetary policy has fallen short of the giving facilities as sought by the private sector but addresses their demands to some extent.

The private sector demanded more though. For example, in its recommendation to the central bank last month, the Federation of Nepalese Chambers of Commerce and Industry had asked the central bank that the loan repayment deadline be extended by three to five years based on the situation of Covid-19-affected enterprises.

The threshold of refinance facility for large enterprises that seek refinance on an individual entity basis should be increased from Rs200 million and refinance up to 80 percent of total loan should be provided to borrowers whose enterprises cannot come into normal operation for three years.

However, Shekhar Golchha, president of the federation, welcomed the monetary policy saying that the policy has by and large addressed issues raised by the private sector.

“It has provided additional relief to sectors that have been badly hit by the Covid-19 pandemic,” he told the Post.

The central bank estimates that along with economic rehabilitation, the demand for credit will rise, resulting in the prospect of a liquidity crunch in the market that may lead to a rise in the interest rate.

In the last fiscal year, the interest rate was limited to the single digit as desired by the business enterprises and lending to the private sector surged by 26.3 percent against the targeted growth of just 20 percent.

The central bank has targeted the growing private sector credit by 19 percent in the current fiscal year though it has kept the policy-related Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), reduced last year sharply, unchanged.

The CRR has been kept at 3 percent while SLR is at 10 percent. The unchanged CRR and SLR will help the banking sector to have adequate liquidity for enterprises to get more credit.

CRR is a certain minimum amount of deposit that banks have to hold as reserves with the central bank. SLR is a minimum percentage of deposits that a commercial bank has to maintain in the form of liquid cash, gold, or other securities.

But in order to keep interest rates in check, the monetary policy has also made provisions that people depositing remittance at banks and financial institutions will get one percent extra interest.

The monetary policy has scrapped the existing system of counting core capital plus credit to deposit (CCD) ratio and adopted only the credit to deposit (CD) ratio. But in order not to allow a reduction in liquidity, the CD ratio that the banks and financial institutions should maintain has been kept at 90 percent.

Last year, the central bank had allowed them to maintain the CCD ratio at 85 percent.

“The new concept regarding the credit to deposit ratio will help increase liquidity in the market,” said Golchha.

Amid concerns over continued growth of the stock market despite the Covid-19 disaster affecting the economy badly, the central bank has sought to control lending in the sector.

As per the monetary policy, a borrower aiming to invest in the stock market can get credit up to Rs40 million from a bank or financial institution and a maximum of Rs120 million from the entire banking system.

“We are worried about how the market will react to this provision,” said Golchha.