Kathmandu. The Confederation of Nepalese Industries (CNI) expects the monetary policy for the fiscal year 2082/83 unveiled by the Nepal Rastra Bank (NRB) to boost economic activity.

The announcement to revise the guidelines on current capital loans based on the nature of the industry business and the loan repayment-income cycle is positive.

However, the confederation has suggested that the current capital should be revised so that it can be made available for productive industries, construction sector and other businesses. The Confederation has taken a positive view of the classification of existing loans and reviewing the loan loss arrangement and adopting the policy of allowing loans to be provided on the basis of customer’s credit score.

It has been said that interest on loans up to Rs 30 million for industries and businesses around postal highways and mid-hill highways will be given at a premium of 2 percent at the base rate and such loans will be counted in the loan of the designated area for small and medium enterprises. This will help small and medium enterprises taking loans up to Rs 3 crore to cope with the current difficult situation.

Similarly, we believe that the provision of allowing loans up to Rs 300,000 taken by youths going for foreign employment and up to Rs 500,000 taken by women to be counted as loans of poor people will provide some ease to the banks under capital pressure to invest more.

We believe that the provision of banks and financial institutions to invest in debentures issued by established institutions to invest in infrastructure will help in correcting the lack of investment in infrastructure. Microfinance companies will review the restrictions imposed on distribution of more than 15 per cent dividend (cash or bonus). This will increase the money (cash dividend) that goes into the hands of investors and help in increasing demand, even if it is small.

The monetary policy shows that the share of the private sector in the total fixed capital formation is declining. Private sector investment is also shrinking due to contraction in market demand. Therefore, the Confederation believes that the Rastra Bank will bring directives÷ guidelines to increase demand and encourage private investment in capital formation by improving the morale of consumers.

The upper limit and lower limit of the interest rate corridor and the policy rate have been reduced from 6.5% to 6%, from 3% to 2.75% and from 5% to 4.5% respectively. This is expected to help reduce interest rates further and boost credit demand. Since the Rastra Bank is supposed to issue bonds, it will give an option to investors when the market is relaxed and investment options are narrow. It is also believed that this will help in managing the structural liquidity in the banking system.

According to the monetary policy, banks and financial institutions can give loans by giving high priority to the analysis of the borrower’s project, knowledge, skills and capabilities while being self-regulated. At a time when the central bank has been accused of focusing more on micro-management than specific objectives, the Rastra Bank has taken positive note of the signs of focusing on supervision by allowing banks to disburse loans at their own discretion under self-regulation.

According to the monetary policy, the bank loan limit for construction÷ purchase of private residential houses should be increased from Rs 20 million to Rs 30 million, loan price ratio for first-time home buyers should be 80 percent and in case of other home loans it should be kept at 70 percent. It believes that this will help improve the market psychology and increase the demand for the construction sector and related construction materials and will also have a positive impact on the government’s revenue collection. Similarly, the announcement to increase the single customer loan limit from Rs 150 million to Rs 250 million will encourage the capital market.

The monetary policy aims to expand credit to the private sector by 12 percent in the next fiscal year. Against the target of 12.5 percent loan expansion in the current fiscal year, only 8.5 percent has been set by mid-May. It is also believed that the central bank will take other necessary policies in the coming days as the fiscal policy has a target of achieving 6 percent economic growth in the coming fiscal year.

It is believed that directives will be issued by the Rastra Bank and suggestions such as moving beyond the existing practice of base rate in determining bank interest rates to MCLR and EBLR, reducing the credit investment limit of the directed sector will be addressed in the coming days.