The government has been compelled to think over extraordinary measures after a series of liquidity injection made by the central bank, totaling Rs 22 billion, failed to ease liquidity shortage. As a result, the lending rates have shot up by up to five percentage point during the last five months. [break]
Introducing refinancing facility for banks against their collaterals of good loans, putting a limit on the volume that banks can accept deposits from institutional depositors, extending repayment period for good borrowers and implementing robust measures to boost capital expenditure are some of the measures that the government is planning to adopt soon, according to officials.
“We have started sensing initial indications that lengthening liquidity crunch has started harming important sectors of the economy that can play crucial role in boosting economic activities and generating employment opportunities,” Finance Minister Surendra Pandey told myrepublica.com.
According to a snap study, rising lending rates has alarmingly raised cost of production of the domestic industries, thereby eroding their competitiveness in the domestic market, let alone in international market.
- Refinance to banks for their good loans
- Extension of repayment period for good borrowers
- 10 pc limitation on institutional depositors´ deposits
- Range of measures to boost capital expenditures
Some of the major labor intensive industries -- some of them under construction -- that were financially feasible earlier are no more viable after the rise in lending rates and that can bring a serious crisis to lending banks if their borrowers fail to repay as schedule, said a knowledgeable official of central bank.
As per a series of steps under consideration, providing refinance facilities to banks for the good loans that they have is on cards. It can be a good instrument to increase liquidity in the banking sector so that there is no more short of funds to invest on productive sectors.
"The government will make all possible efforts to ensure that such funds are used in activities that generate employment and boost outputs like constructing infrastructures, supporting industries to boost their outputs and financing imports of industrial raw materials," said Minister Pandey.
Similarly, the government is also putting a limit on the volume of deposits that a bank take from institutional depositors so as to curb recent practices of seeking higher interest rates from among the banks that are desperate for sizable amount of deposits.
“We are thinking to keep the limit at 10 percent of the total deposits of a bank,” said an NRB official and added that the proposed step will not only compel banks to mobilize individual deposits, but also weakens bargaining capacity of institutional depositors, said an NRB official.
Likewise, the government is also thinking of extending repayment period for the borrowers that have been categorized as good loans if they are in need of so. The purpose is to minimize possible negative impacts on industries and infrastructure project of recent rise in lending rates, said an MOF official.
The Finance Ministry is also taking measures to expedite capital expenditures by picking up a number of projects whose detail feasibility study have already been completed and go into implementation immediately if resources are made available.
We are in process of removing all obstacles seen in boosting capital expenditures soon, said Pandey.
prem@myrepublica.com
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