Monetary Policy 2021/22 of Nepal Nepal Rastra Bank has published monetary policy for the Fiscal Year 2020/21 with a major focus on reviving the economy following the effects of COVID-19 pandemic. https://www.youtube.com/channel/UC24pnkwkU4DhecGBjJl_1XQ

1. Monetary Policy Framework
for
2077/78
(2020/21)

2. BACKGROUND

3. Management and easy access of credit for the sectors affected by
COVID-19
Financial resources will be encouraged for increasing the domestic
production, employment generation and entrepreneurship
development
Inflation maintain within target rate, improvement in budget
deficit due to decrease in imports
Increase in financial access and electronic transaction
Large number of Nepalis return from foreign jobs which
decrease remittance as well as effect internal labor market

4. MONETARY POLICY
STANCE

5. Liquidity management will duly consider the impact of external sector
as well as price stability
Focus on consolidation and integration of the BFI’s for development
and stability of financial sector
Enhance financial access and quality of service through infrastructure
development of financial sector
Monetary policy will focus on macroeconomic stability taking into
account the government to achieve its economic growth rate.

6. Strengthening and safeguarding payment system to encourage
electronic transaction
Encourage mobilization of financial resources in expansion of
economic activities, employment generation and entrepreneurship

7. ECONOMIC AND
MONETARY TARGET

8. 2019/20 2020/2021
Consumer Price Inflation at 6% Consumer Price Inflation at 7%
Maintain foreign exchange reserve sufficient to
cover imports for at least 7 month
Maintain foreign exchange reserve sufficient to
cover imports for at least 7 month
Limitation of broad money growth at 18% Limitation of broad money growth at 18%
Private sector credit growth rate 21% Private sector credit growth rate 20%
Prioritized economic rehabilitation

9. OPERATING TARGET AND
INSTRUMENT

10. 2019/20 2020/2021
SLF rate as upper bound rate at 6%
(Decrease to 5% in April 2020)
SLF rate as upper bound rate at 5%
Deposit collection rate as lower bound at 3%
(Decrease to 2%)
Deposit collection rate as lower bound at
1%
Repo as policy rate at 4.5%
(Decrease to 3.5%)
Repo as policy rate at 3%
CRR for BFI’s 4% (Decrease to 3%) CRR at 3%
Remain unchanged
SLR 10%, 8% and 7% for commercial
banks, development banks and finance
companies respectively

11. 2019/20 2020/2021
Bank rate for lender of last
resort at 6% (Decrease to 5%)
Bank rate for lender of last resort at
5%)
Provide long term Repo facility for
additional liquidity

12. Financial sector program
for
2020/21

13. PROVISION RELATED FOR
CREDIT

14. A policy will be adopted to revive economy by encouraging credit
facility on agriculture, energy, tourism and cottage, small and medium
industries

15. AGRICULTURAL CREDIT

16. 15% (10% in 2019/20) of total credit in agriculture sector until 31st Ashadh 2080 for
commercial bank
Loan loss provision limit to 0.1% and 0.6% for 1st and 2nd year of loan
providing for fruit farming
Providing flexibility in loan loss provision on credit extended to silk, jute
and cotton farming
Policy management related with collateral of lease for simplified the extension
of loan to agriculture, industry or other sector operated by integration of land or
through contract
Establish agricultural development bank as lead bank for agricultural sector
and can issue Agricultural Bond

17. ADBL will provide “Farmer Credit Card” for providing information
Structural and institutional management of ADBL to provide
agricultural training
Credit swap of agricultural credit between BFI’s will be simplified

18. ENERGY SECTOR CREDIT

19. Commercial with experience regarding investment in energy sector
can issue Energy Bond
BFI’s can charge additional 1% interest rate on base rate for 5 years to
extend credit for the project which import electricity
BFI’s can charge additional 1% interest rate on base rate for 5 years to
extend credit for the hydroelectricity project
BFI’s required to extend 10% of total credit in energy sector until 31st
Ashadh 2081

20. TOURISM SECTOR, MICRO,
SMALL AND MEDIUM
INDUSTRY CREDIT

21. Simplification on extension of credit for under construction tourism
sector
Commercial bank required to extend 15% of total credit to micro, small
and medium industry on loan less than Rs. 1 crore until 31st Ashadh 2081
Prioritize working capital credit, concessional credit and refinance for
revival aviation, transportation, hotel, restaurant and tourism sector
affected by COVID-19

22. CONCESSIONAL CREDIT

23. Commercial Bank required to extend concessional for at least 500
individual or minimum 10 per branch, whichever is higher
Simplify implementation of concessional credit for employment
generation, production enhancement and entrepreneurship development
National level Development Bank required to extend concessional credit
for least 300 individual or minimum 5 per branch, whichever is higher

24. MISCELLANEOUS

25. Amount of loan to be extended against the security on housing land and
real estate shall be 40% and 50% of collateral security for inside and
outside Kathmandu Valley respectively
Amount of loan to be extended against security on Personal Residential
Home Loan for first time home buyer shall be 60% of collateral security
Development bank and finance companies required to extend 20% and
15% of total credit to agriculture, micro, cottage and small scale industry,
energy and tourism sector until 31st Ashadh 2081

26. Valuation shares based on the average closing price of the share at the
latest 120 working days (which was 120 days) or prevailing market price,
whichever is lesser
Extend margin lending loan up to 70% against security of shares
which was 65%

27. SPECIAL PROGRAM FOR ECONOMIC
REVIVAL

28. REFINANCE

29. 20% of Refinance Fund provided by NRB based on customer assessment,
70% from commercial bank, development bank and finance companies and
10% from micro finance
Refinance rate on Special refinance at 1%, Micro, cottage and small
industry refinance at 2% and General refinance at 3%
Sick and export industries and other sectors will get special refinancing
facilities at 3%, micro, cottage and small industries and other prescribed
sectors at 5%
Provide refinance funds up to five times

30. Limitation of refinance to micro, small and cottage Rs. 15 lakh and
general and special refinance of Rs. 5 Crore

31. OPERATING CREDIT
FOR SEVERELY AFFECTED
INDUSTRIES

32. Tourism, cottage, small and medium industries which are badly affected
due to COVID-19 will get credit at 5% interest rate for operating business,
paying staff’s salary and entrepreneurship development
Extend further loan up to 20% of working capital maintained at
Chaitra 2076

33. EXTENSION OF CREDIT
REPAYMENT DEADLINE;
RESCHEDULING AND
RESTRUCTURING OF CREDIT

34. Demand Loan, cash credit and working capital credit with payment
deadline up to Ashadh 2077 will be extended up to Pausha 2077
Previous loan installment and interest payment period as of mid-July
has now been extended till Pausha 2077 for industries
Loan installment and interest payment of severely affected industries
by COVID-19 extended till 31st Ashadh 2078
Renewal credit which allow lender to make payment up to Push 2077

35. Grace period up to Pausha 2077 for under construction project
Grace period of 2-Year, 1-Year, 9 Month and 6 Month for tourism hotel,
industries severely affected by COVID-19, industries face medium level
impact and industries with low impact respectively
Extend time period up to 6 month loan installment and interest which
cannot be collected till Ashadh 2077 floated through Microfinance
Institution
Restructure credit through Private Capital, Venture Capital, Debt
Equity Conversion and Special Purpose Vehicle if required

36. STRENGTHENING FINANCIAL SECTOR

37. Commercial banks undergoing the merger and acquisition process and
commencing joint operation until 31st Ashadh 2078 (Mid-July 2021)
will provided facility till 31st Ashadh 2079:
1% and 0.5% Discount on CCR and SLR
Additional 10% on Institutional Fixed Deposit
Additional 5% on Deposit per Institution
Existing 6 Month Cooling Period will not be applicable
Amendment Banking Offence Act , 2064

38. REGULATION AND
SUPERVISION

39. Distribute cash dividend up to 30% of net distributable profit of
2076/77
Prohibition BFI’s on distribution of cash dividends if net distributable
profit is less than 5% of paid up capital
Issue at least 25% debenture of paid up capital until Ashadh 2079
Increase CCD ratio from 80% to 85% till 2078-Ashadh
Provision to accept gold as deposit

40. Loan classified as pass loan on Pausha 2076 can be kept in pass loan
till Ashadh 2077
Modification of BFI’s Stress Testing framework as per international
standard
BASEL-III fully implemented in national development bank from
fiscal year 2077/78
Postponement of counter cyclical buffer ratio

41. Include all BFI along with other institution in GoAML
BFI required to publish Concessional and Refinance Report on their
website in every quarter

42. MICROFINANCE

43. Increase credit limit from Rs. 7 lakh to 15 Lakh on loans against collateral
provided to poor, low income individuals, firms and groups engaged in
agriculture, micro-enterprises and business
Microfinance can charge up to 15% interest on loan; Provision for
Base rate
MFI’s allowed to open branch only in that ward where there is no
branches of any MFI’s
Microfinance operating in province level required to close or transfer
branches other than their own province till Ashadh 2078

44. PAYMENT SYSTEM

45. Establish National Payment Switch
Payment Service Provider license will be cancelled if they are unable to
maintain 3 lakh customer and at least Rs. 6 lakh transaction monthly on
average
Publish Quick Response (QR) Code guidelines
Promote payment through electronic means to implement Nepal
Digital Framework

46. FOREIGN EXCHANGE
MANAGEMENT

47. Foreign exchange limitation up to USD 50,000 on import related with
Documents Against Payment (DAP) / Documents Against Acceptance (DAA)
Limitation of foreign exchange up to USD 40,000 zWhile importing
from third countries from Draft or TT
Foreign exchange unit of this Bank under One Stop Service Centre
will be made more effective.
While importing insurance and transportation service should be taken
from Nepalis service provider

48. CORPORATE GOVERNANCE,
FINANCIAL LITERACY &
CONSUMER PROTECTION

49. Review remuneration and other facilities of CEO and other high ranking
officials; formulation standard for meeting allowance and other facilities of
directors
Implementation of Financial Literacy Framework
Commercial Banks, Development Banks, Finance Companies and
Microfinance can take 0.75%, 1%, 1.25% and 1.50% service charge on
loan respectively
Licensed institution must fully implement directives related with
corporate governance

50. Thank You!