Nepal’s central bank on Friday unveiled rescue packages through its annual monetary

policy to mitigate the economic effects of Covid-19, promising to help support

businesses get back on their feet.

Extension of the loan repayment deadline, refinance facility, grace period extension for
infrastructure projects and targeted lending in productive sectors at cheaper rate are the
key measures the Nepal Rastra Bank announced in its monetary policy for the fiscal year
2020-21 for relief and revival of various sectors affected by the virus.

The private sector and the primary opposition Nepali Congress welcomed some of the
measures in the monetary policy to control money supply to achieve sustainable
economic growth.

“Our demand was the ‘3R’—Reduce, Refinance and Restructure the loans—that the
monetary policy has largely sought to address,” said Saurabh Jyoti, chairperson of the
bank, finance and insurance committee at the Federation of Nepalese Chambers of
Commerce and Industry, the apex private sector body.

Besides extending the deadline for paying loan instalments, the monetary policy
announced by Governor Maha Prasad Adhikari also provisions mandatory lending to
the sectors such as agriculture; micro, small and medium enterprises; and hydropower.

As part of providing relief, it has extended the deadline for paying loan instalments by
six months, nine months and one year, depending on the degree of impact on the
particular sector as the central bank seeks to ease the pains on the businesses caused by
the pandemic.

It has permitted banks and financial institutions to extend further loans to industries
and businesses affected badly by the pandemic by 20 percent of the working capital
maintained at mid-April.

n order to revive the businesses severely hit by Covid-19, it has decided to provide
refinance funds up to five times. However, the size of the fund has not been revealed.

As per the policy, exports and sick industries as well as other sectors will get special
refinancing facilities at a maximum 3 percent interest rate, while micro, cottage and
small industries will get credit at a maximum 5 percent interest rate.

Former finance minister Ram Sharan Mahat said that the central bank has come up with
a policy that builds a positive state of expectations for the economy hit by the pandemic.

“As the overall goal of the monetary policy is to revive the country’s economy from the
Covid-19 impact, it has addressed the key sectors for economic revival,” Mahat told the
Post.
Mahat, who leads the economic special committee of the main oppositionNepali
Congress, however, said that the policy is mum on the size of the refinance package.

“We had suggested that it should be worth at least Rs200 billion,” he said. “Overall, the
monetary policy, however, sends a positive message.”

He also praised the mandatory requirement to lend to the agriculture sector and micro
and small and medium enterprises.

As per the policy, commercial banks need to lend at least 15 percent to the
agriculture sector by mid-July 2023; 15 percent to micro, small and medium
enterprises; and 10 percent to the hydropower sector of the total loans by mid-
July 2024.

Currently, they need to extend 10 percent loans to agriculture, 15 percent to

energy and tourism sectors but both targets have not been met so far, according
to the central bank.

The private sector said it is pleased that most of their key demands have been
addressed by the monetary policy.

“The monetary policy has addressed most of our demands vis-a-vis rescue and
revival of the businesses [in the wake of Covid-19],” said Chandra Dhakal, vice-
president of the Federation of Nepalese Chambers of Commerce and Industry,
the country’s apex private sector body.

“It has also introduced a policy to take care of small and medium enterprises,
which have been badly affected by the pandemic.”

The private sector had demanded that the loan repayment reschedule be
extended by six months after the lockdown for the sectors affected by the
pandemic; and for others, an extension of the deadline by three months.

Governor Adhikari, however, announced that the borrowers of the worst affected
sectors, which were supposed to pay the instalments by mid-July this year, could
pay their dues by mid-July 2021.

The service industry—particularly the tourism and aviation sectors, and micro,
small, and medium-scale enterprises—is among the worst hit by the pandemic,
which has taken 40 lives and infected over 17,000 Nepalis as of Friday.
The sectors facing medium impact can now pay instalments by mid-April next
year and those facing a mild impact can pay them by mid-January next year,
according to the monetary policy.

Earlier, the central bank had extended the deadline for paying the instalments to
mid-July this year from the regular deadline of mid-June through a review of the
monetary policy introduced last fiscal year, which ended on Wednesday.

There is a provision of a fund worth Rs50 billion through which badly affected
sectors like tourism and micro, small and medium enterprises get loans at a 5
percent interest rate for reviving the enterprises and paying staff salary.

This is the fund created as per the budgetary provision of the government.

The central bank also addressed the private sector’s demand that the core capital
plus credit to deposit ratio (CCD ratio) be increased to 85 percent from 80
percent so that more liquidity could be available to the banking sector.

“This will create around Rs180 billion excess liquidity in the market which will
help bring the interest rate down,” Jyoti of the Federation of Nepalese Chambers
of Commerce and Industry said.

The service industry—particularly the tourism and aviation sectors, and micro, small,
and medium-scale enterprises—is among the worst hit by the pandemic, which has
taken 40 lives and infected over 17,000 Nepalis as of Friday.

The sectors facing medium impact can now pay instalments by mid-April next year and
those facing a mild impact can pay them by mid-January next year, according to the
monetary policy.

Earlier, the central bank had extended the deadline for paying the instalments to mid-
July this year from the regular deadline of mid-June through a review of the monetary
policy introduced last fiscal year, which ended on Wednesday.

There is a provision of a fund worth Rs50 billion through which badly affected sectors
like tourism and micro, small and medium enterprises get loans at a 5 percent interest
rate for reviving the enterprises and paying staff salary.

This is the fund created as per the budgetary provision of the government.

The central bank also addressed the private sector’s demand that the core capital plus
credit to deposit ratio (CCD ratio) be increased to 85 percent from 80 percent so that
more liquidity could be available to the banking sector.
“This will create around Rs180 billion excess liquidity in the market which will help
bring the interest rate down,” Jyoti of the Federation of Nepalese Chambers of
Commerce and Industry said.

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