A few recommendations for mid-term monetary policy review

Anal Raj Bhattarai

  • Read Time 2 min.

The Nepal Rastra Bank (NRB) is expected to release a Mid-term Monetary Policy Review shortly. A few recommendations for policymakers for the next review:

1. Rescheduling of MSMEs Term loan and Personal Loan facilities

NRB should allow Bank and Financial Institutions (BFI) to provide an appropriate moratorium period for repayment of interest and principal along with interest capitalization without additional provisioning to micro, small and medium-sized enterprises (MSMEs) and the same shall not be treated as changes in terms and conditions of loan agreements. The rescheduling of payments, including interest, will not qualify as a default for the purposes of supervisory reporting and reporting to Credit Information Bureau (CIB) by the BFIs.

2. MSMEs Definitions

Initiate steps to have a single definition of MSMEs across all regulators and develop new guidelines for MSMEs.

3. Temporary Relaxation of Asset Classification of eligible MSMEs

The economic recession has led to an increase in Non-Performing Loans (NPLs). Therefore, temporary relaxation of asset classification and provisioning norms or refinancing of stressed assets ( of MSMEs) will help BFIs to maintain positive reserves and maintain the adequate Capital Adequacy Ratio (CAR).

4. Review assets and liability pricing policy

Nepali banks do not use a systematic approach to pricing, the pricing function of assets can be fragmented based on various parameters such as specific sectors, risks, nature of the loan, and exposure size. NRB further needs to issue pricing guidelines to ensure and maintain competitive pricing in the market.

5. Increased coverage in credit guarantee

The economic recession has deteriorated the operating environment, the risk appetite of BFIs, and the customer risk profile along with the tightening of capital adequacy requirements. Hence, NRB should increase coverage of credit guarantees on MSME loans to build up the confidence to lend.

6. Generate a unique identification number for banking transactions

To avoid multiple banking a unique identification number for each individual needs to be used for opening bank accounts, obtaining loans, and any other banking transactions.

7. Rapid Assessment of BFIs

Start sectoral analysis and take necessary steps to initiate a rapid assessment of BFIs to understand the long-term impact of economic recession.

Anal Raj Bhattarai is Chief Executive Officer (CEO) at NRN Nepal Development Fund Ltd. (NDF).