Monetary policy review: NRB reduces risk weightage of vehicle loan

KATHMANDU: Nepal Rastra Bank (NRB) has lessened the risk weightage of vehicle loans in its third quarterly review of the monetary policy for the current fiscal year 2023/24.

In the third quarterly review of the monetary policy, the existing risk weightage of 125% for hire purchase loans provided by banks and financial institutions (BFIs) has been reduced and set at 100%.

Similarly, a provision has been brought allowing for the extension of loans for home purchases based on the Debt Service to Gross Income Ratio, from the existing 50% to 70%, based on the submission of appropriate evidence. 

BFIs are allowed to sell up to 20% of their primary capital in a single fiscal year from investments made in the mid-category. 

Similarly, the existing loan loss provision for loans classified as 'good' and disbursed from BFIs has been reduced from 1.25% to 1.20%. The NRB has also indicated that the current arrangements relating to the import and distribution of silver will be reviewed.

According to the NRB, the flexible approach adopted in the annual monetary policy has been continued in the third quarterly review. "Based on the internal and external economic conditions and outlook, the existing policy rate of 5.5%, the deposit collection rate of 3% under the interest rate corridor, and the bank rate of 7% have remained unchanged," it is stated in the review of the monetary policy. "The existing mandatory cash ratio and statutory liquidity ratio arrangements have been preserved.”

The NRB has stated that a necessary review will be conducted in the system of providing permanent deposit facilities to make the interest rate corridor effective. Furthermore, it is said that necessary facilitation will be carried out to introduce additional instruments to further strengthen the capital base of BFIs.

(With inputs from RSS)