Knowledgeable sources informed myrepublica.com that in making the changes, the New Monetary will carry a bold message that the central bank is committed to addressing the illiquid market by channeling investments toward the productive sector but limiting inflation at 7 percent, said the source. [break]
With the rise in the bank rate, the minimum rate for Standby Liquidity Facility (SLF) -- or loans extended to financial institutions by the central bank against government bills owned by them -- will go up to 10 percent from the current 9.5 percent.
The underlining objective of the change in bank rate is to urge banks to mobilize funds from the public rather than depending on NRB financing, said the source.
Though there have been no changes in the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), the calculating methodology will be changed. As per the new method, CRR has been made a part of SLR.
From now on, the SLR for financial institutions will be 15 percent and will include CRR maintained at 5.5 percent and the cash vault at 1.5 percent, said the source. NRB has raised SLR to 8 percent of total deposits from this fiscal year whereas it was 6 percent last year.
- Bank rate increased to 7 pc
- Loan exposure to real estate squeezed to 15 pc
- New polices to encourage mergers, acquisitions
- Margin lending increased to 60 pc
- Foreign exchange limit for travel scrapped
The new policy is also changing the limit imposed by the central bank on the exposure of bank financing to the realty sector.
Though there will no change in the 40 percent exposure limit to the real estate cum housing sector, the maximum limit of loan exposure to real estate will be lowered to 15 percent from 25 percent. Apart from that, investments made in commercial complexes that generate regular income will be counted as investments made to industries.
Similarly, the policy has also raised the maximum limit on lending against shares as collateral from the existing 50 percent to 60 percent. As per the policy, financial institutions are allowed to extend loans of up to 60 percent of the average closing price of the last six months for shares pledged as collateral or the latest market price, whichever is lower.
In order to encourage merge and acquisitions among financial institutions, the upcoming monetary policy is introducing an incentives policy for those that take up bad financial institutions.
However, details of the policy which includes a relaxation for three years in the Capital Adequacy Ratio (CAR) for banks that acquire financially weak institutions will be announced later, added the source.
The new policy is also announcing a scheme to promote access of rural people to modern banking in 22 districts that have low per capita banking services.
As per the scheme, the central bank will provide Rs 5 million worth of interest-free financing for a period of three years for establishing a bank or a bank branch at district headquarters and Rs 10 million for established outside district headquarters.
In like manner, the existing limit on foreign exchange facilities for overseas travel that was limited to twice a year will be scarped and the new policy will allow such exchange facilities for an unlimited number of times.
However, those seeking foreign exchange for such travel will have to show a Permanent Account Number and source of income. The maximum foreign exchange amount will remained at $ 2,000 for each occasion.
The new policy is also expected to limit the broad money supply to 15 percent as against 10 percent in the current year.
prem@myrepublica.com
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