New monetary policy today

THE Nepal Rastra Bank (NRB) is unveiling the new monetary policy on Sunday with provisions related to raising paid-up capital requirement for banks and financial institutions (BFIs), changes in the bank branch opening policy and implementation of Basel III. A high-level NRB official said the monetary policy would adopt the policy of increasing lending, reducing bank rate and increasing refinancing to the productive sector. NRB board directors and senior officials will give a final touch to the monetary policy on Sunday morning before releasing it on the same day. The official said the policy will incorporate the issue of reviewing the bank licensing policy with the provision of encouraging BFIs to increase their paidup capital. The central bank has been informally asking BFIs to increase their paid-up capital. Currently, the central bank has imposed a moratorium on issuing new licenses and the central bank is under pressure, even from the International Monetary Fund, not to lift this moratorium. The NRB will continue to prioritise merger between BFIs, but the official said chances of announcement of new incentives for mergers are slim. “We have already provided facilities that we could,” said the official. The budget for this fiscal year also did not announce any tax exemption schemes as expected by bankers. The new monetary policy will seek to implement the Basel III rules. The central bank has already started implementing the rules by directing BFIs to maintain 1 percent extra buffer capital in the capital adequacy ratio. Basel III rules seek additional capital adequacy, stress testing and adequate liquidity availability to avert risk in the banking sector. The new monetary policy will also further encourage BFIs to go to rural and remote areas. “For this, we have planned to change the branch opening policy,” said the central bank official. The central bank also plans to incorporate the issue of the bank interest rate corridor. It wants to keep the interest the rate at a certain level which will reduce the risk caused to businesses due to volatility in interest rates. The NRB implemented the base rate last fiscal year to bring transparency in interest rates.