Kathmandu. Nepal Rastra Bank (NRB) has unveiled the third quarterly review of the Monetary Policy for the current fiscal year 2081/82. A key highlight of the review is the reduction in the risk weight for share mortgage loans from 125% to 100%, a move expected to ease credit flow in the stock market. 

Earlier, the risk weight of share-backed loans was 125 percent. With the 25 percent reduction, the risk weight of the existing share-backed loans remains at 100 percent. According to the Nepal Rastra Bank, the policy rate has been kept unchanged at the existing 5 percent, the deposit collection rate as the lower limit is 3 percent, and the bank rate as the upper limit under the interest rate corridor is 6.5 percent.

Nepal Rastra Bank has made six new arrangements in the third quarterly review of the monetary policy for the current fiscal year.

1. The monetary policy direction has been carefully balanced based on the domestic economic and financial situation and scenario.

2. The policy rate has been kept unchanged at 5.0 percent, the deposit collection rate, which is the lower limit, has been kept unchanged at 3.0 percent, and the bank rate, which is the upper limit under the interest rate corridor, has been kept unchanged at 6.5 percent.

3. The existing mandatory cash balance and statutory liquidity ratios have been kept unchanged. Considering the existing liquidity situation of the financial system and the recent improvements made by this bank in open market transaction instruments, banks and financial institutions will be required to maintain a minimum mandatory cash balance of 90 percent daily.

4. The risk weight of the existing share collateralized loan will be reduced from 125 percent to 100 percent.

5. With the aim of improving the investment environment, the “Nepal Rastra Bank Foreign Investment and Foreign Debt Management Regulations, 2078” will be issued, incorporating the provisions of the latest amendments to the Foreign Exchange (Regulation) Act, 2019 and the Foreign Investment and Technology Transfer Act, 2075.

6. A procedure for verifying the facts related to dishonor of checks will be formulated and issued in accordance with the amendment to the Banking Offences and Punishments Act, 2064.

Similarly, the existing mandatory cash balance and statutory liquidity ratio have been kept unchanged. Considering the existing liquidity situation of the financial system and the recent improvements made by the Rastra Bank in open market transaction instruments, the Rastra Bank has stated that banks and financial institutions will be required to maintain a minimum mandatory cash balance of 90 percent daily.

The Rastra Bank's provision seems to increase the size of loans flowing into the capital market by placing a low risk weight on share loans to banks and financial institutions. In addition, investors in the stock market have also been demanding a reduction in risk weight since the past.