Monetary Policy of Nepal 2078/79, 2021/22 Follow my facebook page: www.facebook.com/cakrishnaniraula for more updates relating to banking , financial and accounting sector

1. Monetary Policy 2078/79
Presentation
Krishna Niraula (CA)

2. Krishna Niraula (CA)
Background
• Covid-19 impact on economic development
• Impact on BOP despite impressive export growth due to increased import
• Supportive foreign exchange reserves and inflation within targeted limit.
• Impressive credit growth
• Decreased operating cost in business due to single digit credit interest rate.
• Rapid increment in digital transaction
• Worldwide economy towards revival due to relaxed and impressive policy measures & vaccine of pandemic.
• Revival rate very low on economies dependent on tourism and on economies having lower access to vaccines
• Need for regulatory facilitation for quick economic recovery minimizing the pandemic effect as well as economic
stability and stabilizing the adverse effects on foreign sector.
Monetary policy 2078/79 targeted on
• Covid Relief & Economic Recovery
• Credit Growth Control &
• Promotion of Merger & Acquisition 2

3. Krishna Niraula (CA)
International Economic Status of 2021
Growth rate 6%
Developed economies growth 5.6%
Emerging & Developing Economies growth 6.3%
China & India Economic growth 8.1% & 9.5%
Inflation Developed Economies 2.4%
Inflation Emerging & Developing Economies 5.4%
Worldwide trade growth 9.7%
Petroleum price increment 56.6%
Public Expenditure to GDP 97.3%
Relaxed monetary policy by central banks 3

4. Krishna Niraula (CA)
Economic Status of Nepal 2077/78
Economic Growth
• Economic growth rate 4.01% (likely to be affected due to
second wave of pandemic)
• Gross Domestic Savings to GDP 6.6% and Gross National
Savings to GDP 31.4%
• Gross Fixed Capital Formation to GDP 27.3%
Inflation 3.6%
Government Expenditure: Rs. 1180.95 billion (Rs. 851.68 billion
current, Rs. 228.30 billion capital & Rs. 100.97 billion financial
management
• Revenue Collection by Govt. Rs. 938.32 billion
• Internal borrowings mobilized by govt. Rs. 224.01 billion &
principal repayment Rs. 36.90 billion (net Rs. 187.11 billion),
4.4% to GDP
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Foreign Trade, Remittance & BOP status
• Export increment 44.4% (total export Rs. 141.12
billion), import increment 28.7% (total import Rs.
1539.84 billion)
• Trade deficit increment 27.3% & remittance
increment 9.8% (total remittance Rs. 161.05 billion)
• Current Account deficit Rs. 333.67 billion, BOP
savings Rs. 1.23 billion
• Foreign Exchange Reserves Rs. 1399.03 billion
• Foreign Exchange reserves sufficient to bear 11.2
months import of goods & 10.2 months of goods &
services
• NPR value increment by 1.12% compared to US $

5. Krishna Niraula (CA)
Financial Sector Status of Nepal 2077/78
Banking Sector
• Deposit mobilization Rs. 4662.73 billion (21.4% increment)
• Credit Rs. 4084.81 billion (27.3% increment)
• Paid Up Capital (including D class): Rs. 390.43 billion (10.8% increment)
• CAR (A class: 14.1%, B class 13.2% & C class 22.0%)
• NPL (A class: 1.5%, B class 1.5% & C class 6.2%)
• Total 229 BFIs in merger and their current number 58
• Total Branches of BFIs 10,683, per branch customer 2844
• Commercial Bank branches in 750 local levels out of 753
Capital Market
• Nepse 2883.4 (last year 1632.4),
• Market Capitalization Rs. 4010.96 billion (123.7% increment)
• Financial Sector mobilization Rs. 100.38 billion
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6. Krishna Niraula (CA)
Monetary Policy Review 2077/78
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S.N. Indicators Target Status
1 Broad Money Supply 18% 21.8%
2 Private Lending Growth 20% 26.3%
3 Interbank Rate 1%-5% corridor 4.14%
4. Liquidity Injection: - NRs. 438.28 billion (Repo 67.94 billion & SLF 370.34 billion)
5. Liquidity Absorption: - NRs. 303.29 bil.(Reverse Repo 109.54 billion, Deposit coll. Bid 193.75 billion)
6. USD purchased from Commercial banks: - 3.6 billion$ (for NRs. 425.94 billion)
7. USD sold to commercial banks: - 4.54 billion$ (for INR equal to NRs. 535.23 billion)
8. Interbank transaction (commercial banks): - NRs. 1782.96 billion
9. Interbank transaction (Other BFIs): - NRs. 213.62 billion
10. 91 days Avg. T-Bill rate: - 4.55%
Monetary Management
Commercial Banks Ashadh 2077 Ashadh 2078
Base Rate 8.5% 6.86%
Wt. Avg. Deposit Rate 6.01% 4.65%
Wt. Avg. Credit Rate 10.11% 8.43%

7. Krishna Niraula (CA)
Monetary Policy Review 2077/78 (contd.)
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S.N. Sectoral Credit (Commercial Banks) Target 2078 Asar Status 2078 Asar
1 Agriculture 11% 13.2% (NRs. 425.83 billion)
2 Energy 6% 6.0% (NRs. 194.13 billion)
3 MSME (<NRs. 1 crore) 11% 10.1% (NRs. 327.80 billion)
A, B and C Class
4 Deprived Sector 5% 7%
Sectoral Credit
Sectors No. of borrowers Total Loan (Rs.)
Agriculture 46057 106.98 billion
Women Entrepreneurs 55551 50.98 billion
Other 8 headings 2501 3.48 billion
Total 104,109 161.44 billion
Interest Subsidized Loan by Govt.

8. Krishna Niraula (CA)
Monetary Policy Review 2077/78 (contd.)
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S.N. Credit No. of Borrowers Approved Amount (Rs. billion)
1 Refinance for specified profession, industry &
business
48,890 148.75
2 Additional 20% Working Capital Loan 16,182 14.24
3 Additional 10% Term Loan 7,269 9.36
4 Increase in Credit Moratorium Period 993 52
5 Increase in Credit Repayment Period 19,786 93.63
6 Credit Restructure & Reschedule (Poush 77) 21,617 129.21
7 Business Continuity Loan (GoN Program) 0.95 (approved) & 0.73 (disburse)
Targeted Credit for Covid-19
Similarly, credit facility to health sector, hospitals & liquid oxygen plant: Rs. 50 cr. & for Oxygen Plant: Rs. 20 Cr.

9. Krishna Niraula (CA)
Economic Scenario for 2078/79
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S.N. Indicators Estimation/Projection
1 Worldwide Inflation (Developed Economies) 2.1%
2 Worldwide Inflation
(Emerging & Developing Economies)
4.7%
3 Worldwide Economic Growth 6.0% (2021) & 4.9% (2022)
4 Agro Sector Production Growth Satisfactory due to fav. climate, fertilizers & increase in agri credit access
5 Economic Growth Improve (Due to Vaccine availability)
6 Inflation Impact (due to increase in crude oil prices, & currency fluctuation)
7 Balance of Payment Impact (due to increased imports & reduced no. of Nepalese going for
foreign employment)
8 Foreign Exchange Reserves Satisfactory
9 Liquidity Impact (due to increase in credit demand after economic revival)
Targeted Credit for Covid-19

10. Krishna Niraula (CA)
Directions of Monetary Policy 2078/79 (मौद्रिक नीद्रिको कार्यद्रिशा)
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Balanced Direction to match revival of economy through economic growth alongwith economic and financial stability.
Continuity of current fixed exchange rate mechanism for overall price & foreign sector stability in monetary
management.
Available financial resources to be targeted towards production increment, creating employment, entrepreneurship
development and sustainable & inclusive economic development.
Liquidity management by stabilizing interest rates through effective implementation of interest rate corridor.
Promotion and strengthen good governance of BFIs for financial sector development & stability. Financial intermediary
to be made strong and effective
Cash transaction to be minimized by promoting electronic medium of payment.
Promotion of financial access and financial inclusion through development of financial infrastructure & financial literacy

11. Krishna Niraula (CA)
Economic & Monetary Goals (आद्रथयक िथा मौद्रिक लक्ष्र्)
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• Inflation within 6.5%
• Foreign exchange reserves to sustain import of goods and services for 7 months.
• Broad money supply growth 18% and private sector lending growth 19%
Operating Goals and Instrument (संचालन लक्ष्र् िथा उपकरण)
• CRR 3%
• Bank Rate 5%
• SLF Rate 5%
• Deposit Collection Rate of IRC increased to 2% from 1%
• Repo Rate increased to 3.5% from 3%
• SLR 10%, 8% and 7% for A,B & C class respectively.

12. Krishna Niraula (CA)
Provisions for Financial Sector for 2078/79
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Source Mobilization
• “B” & “C” class and Wholesale Lending “D” class to issue debentures of 25% of paid up capital (like commercial banks)
• Agri and Energy Bonds provisions to continue
• Additional 1% interest on deposit from remittance through banking system from Nepalese in foreign employment
Credit Disbursement
• MSME Loans <Rs. 1 crore (15% of total portfolio) to continue
• Focal desk for agriculture, MSME loans in commercial banks undergoing govt. trans. in local levels
• Deprived sector loans to be gradually diverted towards MSME sectors.
Deprived Sector Loan (DSL)
• Business loans upto Rs. 15 lakhs to employees loosing job in tourism to be taken in DSL
• Auto Loan upto Rs. 25 lakhs for self employment to be taken in DSL
• Loan to women entrepreneurs for Micro Industries and self employment in project collateral upto Rs. 20 lakhs counted in
DSL (compulsory insurance)
• Loan upto Rs. 20 lakhs to actual farmer in project collateral to be counted in DSL (compulsory insurance)
Interest Subsidized Loan to be effectively implemented

13. Krishna Niraula (CA)
Special Program for Economic Revival
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• Refinance: Current provision of refinance for instant revival of covid impact industries/business to be continued
• Effective Implementation of Business Continuity Loan
Credit Repayment Period Addition, Restructuring & Rescheduling
• Current provision of 2 years continuous loss to be classified into watchlist category to be increased to 3 years
• Facility to BFIs to self reduce instalment amount & increase repayment period for loans having adverse impact on financial
position & cash flow position due to Covid 19
• EMI/EQI upto Asar 2078 during lockdown period may be extended to 2078 Poush
• No fine/penal charge on interest accrual on loans disbursed to hotel, travel, trekking and airlines upto Asar 2079.
• Principal and interest repayment upto Poush 2078 period to be increased by 1 year for loans highly impacted by Covid-19 & to
MSME whose cash flow is blocked.
• Restructuring and Rescheduling on highly impacted loans due to Covid 19 till Poush 2078.
• Additional Rs. 2 lakhs loan for repair & maintenance of public transportation

14. Krishna Niraula (CA)
Special Program for Economic Revival contd…
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Other Provisions relating to credit
• Credit to Deposit Ratio to be maintained within 90% till Ashadh 2079 (Current 85% provision of CCD to be removed)
• Consortium limit of Rs. 1 billion to be increased to Rs. 2 billion
• Special refinance to BroadBand Internet in rural areas
• Compliance to Specified Sectoral Loan (तोकिएिो क्षेत्रिो िर्जा) by “A” class may be done in lumpsum till 2079 Ashadh.
• Interest capitalization of ongoing projects in moratorium period pre approved by NRB to be continued till 2079 Ashadh.
• Provision on interest capitalization on long term agricultural loans
• Loan to vaccine manufacturing company at base rate of BFIs.
• Policy reforms for loan facilitation in case of business change by MSMEs.
• LTV ratio on margin lending loan same (70%)
• Maximum margin lending loan from 1 BFI to be Rs. 4 cr. & from all BFIs to be Rs. 12 cr.
• Professionals impacted by covid 19 to be provided loans upto specific limit.
• Refinance facility for charging station establishment.
• Easy loan disbursal to establish upto 100 bed hospitals in local levels not having hospitals.
• Provision of credit to institutions providing technical & business training.
• Facilitation for financial resources to establish industries based on domestic raw materials

15. Krishna Niraula (CA)
Special Program for Economic Revival contd…
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Financial Sector Enhancement
• 2nd Financial Sector Development Strategy (FSDS) and 4th Strategic Planning of NRB to be formulated & implemented.
• Amendment process of FERA, 2019, Negotiable Instruments Act, 2034, and BOPA, 2064
• Additional Promotion for self esteemed merger of BFIs.
Additional Facilities for Merger till 2080 Ashadh end
• 1 year addition to comply specified sector loan.
• 0.5% relaxation in CRR & 1% relaxation in SLR till 1 year of joint operation.
• Per institutional deposit limit to be increased by 5%
• Relaxation in 6 months cooling period to Directors & top management
• 1% relaxation in interest spread rate
• No approval of NRB required to merge branches within 1 km.
• Fit & Proper test not compulsory to promoter shareholders holding less than or equal to 0.1% shares of “A” class.
• All above facilities for BFIs acquiring problematic BFIs.
• Provision for candidacy in director either from promoter group or ordinary group option to be given to shareholders.
• Provision to open corporate office at a suitable place within workscope as well as to open correspondence office in province
capital and Kathmandu to promote merger & acquisition for province level BFIs.

16. Krishna Niraula (CA)
Regulatory and Supervisory Provisions (द्रनर्मनकारी िथा सुपरीवेक्षकीर् व्र्वस्था)
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Countercyclical buffer suspension till 2079 Ashadh
Fixed interest rates on term loans
Spread rate same (4.4%)
Base rate calculation method review & Only 2% premium addition for loans <= Rs. 1 crores to operate business
Project based lending to be made effective
Working Capital Loan Directions
Supervisory Information System (SIS)
Co-ordination with other regulatory bodies & stakeholders for joint supervision of subsidiary companies of BFIs.
Policy co-ordination & technical support to regulators for regulation & supervision of co-operatives.
Blacklisting provision to be reviewed.
Change in regulation mechanism of institutions licensed for hire-purchase transactions.
Independent audit of refinance, business continuity loan & effectiveness as well as utilization of subsidized loan.
Directions of CSR
No approval for liaison office in Karnali & Sudurpaschim province.
E-KYC to be developed.
Co-ordination with ICAN for limit in external audit by audit firms.

17. Krishna Niraula (CA)
Microfinance (लघुद्रवत्त)
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Retail lending to be allowed to MFIs after merger/ acquisition of Wholesale lending MFIs with retail lending MFIs.
Merger within 2079 Ashadh of microfinance having cross holding of A, B and C class.
Maximum 5 lakhs loan to be allowed per co-operatives member for joint farming and livestock.
Required study of MFIs to work as financial representative of commercial bank.
National level MFIs to comply NFRS.
Payment System (भुक्तानी प्रणाली)
2079/80 as Electronic Payment Transaction Promotion year.
National Payment Switch establishment to be completed.
Special Refinance to PSO, PSP and ISP
Review of electronic transaction limit and policy reform for suitable electronic transaction fee.
Required facilitation in all revenue & other payments to Govt. through banking and electronic mode.
Social security allowance to be made easily available through electronic payment from bank branches performing govt. transaction
Digital Lending Framework formulation & implementation
Study of Central Bank Digital Currency
Electronic application provision for Citizen Saving Certificate & Foreign Employment Saving Certificate.
Study for cloud infrastructure for safety of payment system
Study on PSPs to provide loan upto specified limit through digital mode for MSMEs and start up business

18. Krishna Niraula (CA)
Foreign Exchange Management (द्रविेशी द्रवद्रनमर् व्र्वस्थापन)
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Review on exchange facility for abroad service agreement by Nepalese entities.
Up to 25,000$ exchange facility from “A” class to airway service provider for service import
Credit Information not compulsory for payment in draft/TT upto specified limit.
Direct payment facility to abroad through “A” class by National Priority Projects
Existing list of importable goods &services from India to be reviewed
No renewal fees on foreign exchange license till 2079 Ashadh
Management of service import like apps, software & online advertisement through co-ordination with regulators/stakeholders
Merger of remittance companies
Review of maximum cash limit that Nepalese citizens can keep in convertible foreign exchange, time period & its exchange
Review & support in import of medical supplies for Covid-19
Study on possibility to send remittance through agency account of NRB in countries having difficulty to remit in US$
Study the situation of utilization of card upto USD 500 to promote ecommerce and make it more effective.
Study on implementation status of Foreign Investment & Loan Management Byelaws, 2078

19. Krishna Niraula (CA)
Customer Interest Protection (ग्राहकद्रहि संरक्षण)
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Formulation of Financial Customer Protection laws
At least one branch and ATM lounge of BFIs to be disabled friendly in local levels having branches more than specific limit
BFIs to keep the link of grievance portal of NRB in their website.
Required provisions for uniformity in credit lending and KYC documents.
Required study to be done for Province Financial Institution to increase financial access in Karnali & Sudurpaschim Province
Special monitoring & supervision for identification, measurement, evaluation and management of high risk sectors pointed by NRA, 2020