Monetary Policy 2024/25: NRB implements measures to manage capital fund pressure

KATHMANDU: Nepal Rastra Bank (NRB) has introduced several adjustments aimed at alleviating pressure on the capital funds of banks and financial institutions (BFIs). These measures encourage the use of capital fund tools and introduce new approaches.

In the monetary policy for fiscal year 2024/25 unveiled today, the existing loan loss provision for good loans has been lowered from 1.20% to 1.10%. This adjustment aims to ease the burden on BFIs while maintaining prudent risk management practices.

The central bank has emphasised the need for a thorough review of arrangements related to risk associated with buying and selling loans. This review aims to enhance transparency and efficiency in loan transactions.

The limit for the existing Regulatory Retail Portfolio (RRP) has been raised from Rs 20 million to a maximum of Rs 25 million. This change allows BFIs to serve a broader range of retail clients.

BFIs now have provisions to calculate appropriate reserve amounts within the 'regulatory reserve' as part of their Tier 2 Capital. These calculations are subject to the provisions outlined in the 'Capital Adequacy Framework, 2015'. The goal is to ensure that the total capital fund does not exceed twice the primary capital fund.

These adjustments reflect NRB’s efforts to strike a balance between financial stability and growth within the banking sector.