Nepal's Central Bank unveils monetary policy for FY 2020-21 to mitigate economic effects of Covid-19

Kathmandu [Nepal], July 18 : Nepal's Central Bank on Friday unveiled rescue packages through its annual monetary policy to mitigate the economic effects of Covid-19, promising to help support businesses get back on their feet.
Extension of the loan repayment deadline, refinance facility, grace period extension for infrastructure projects and targeted lending in productive sectors at the cheaper rate were the key measures of the Nepal Rastra Bank, announced in its monetary policy for the fiscal year 2020-21 for relief and revival of various sectors affected by the virus, as per Kathmandu Post reports.
"Our demand was the '3R'--Reduce, Refinance and Restructure the loans--that the monetary policy has largely sought to address," said Saurabh Jyoti, chairperson of the bank, finance and insurance committee at the Federation of Nepalese Chambers of Commerce and Industry, the apex private sector body.
Besides extending the deadline for paying loan installments, the monetary policy announced by Governor Maha Prasad Adhikari also provisions mandatory lending to the sectors such as agriculture; micro, small and medium enterprises and hydropower.
As part of providing relief, the policy has also 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 seeks to ease the pains on the businesses caused by the pandemic.
It has permitted banks and financial institutions to extend further loans to industries and businesses affected badly by the pandemic by 20 per cent of the working capital maintained at mid-April.
There is a provision of a fund worth Rs 50 billion through which badly affected sectors like tourism and micro, small and medium enterprises get loans at a 5 per cent interest rate for reviving the enterprises and paying staff salary.
In addition, commercial banks need to lend at least 15 per cent to the agriculture sector by mid-July 2023; 15 per cent to micro, small and medium enterprises; and 10 per cent to the hydropower sector of the total loans by mid-July 2024, as per the policy.
In order to revive the businesses severely hit by Covid-19, it has decided to provide refinance funds up to five times.
For the banking sector, the policy has encouraged mergers with a number of incentives. It has relaxed the provisions related to provisioning in case the loans extended are related to Covid-19 affected sectors.
When the loan is not paid, the banks require to maintain a certain amount in reserve and cannot be counted as profit, which is called provisioning. How much provisioning should be made depends on the category of the loans which ranges from one per cent to 100 per cent.