Governor Dr. Paudel reduces risk weight on securities-backed lending

KATHMANDU, MAY 26: Newly appointed Governor of Nepal Rastra Bank (NRB), Dr. Bishwanath Paudel, has reduced the risk weight on securities-backed lending through the third quarterly review of the Monetary Policy for the current fiscal (2024/25). Through the review made yesterday, the risk weight for such loans exceeding NPR 5 million has been reduced from 125 percent to 100 percent.

Earlier, the risk weight for securities-backed lending up to NPR 5 million had already been revised to 100 percent. Some four years back, the central bank had raised the risk weight on this type of lending to 150 percent in response to financial stability concerns.

In a bid to improve the overall investment environment, the central bank is set to introduce the Foreign Investment and Foreign Loan Management Regulations, 2021. This regulation will incorporate recent amendments to the Foreign Exchange (Regulation) Act, 2019, and the Foreign Investment and Technology Transfer Act, 2019.

The third quarterly review of the Monetary Policy has also kept key policy rates unchanged. The policy rate remains at 5.0 percent, the deposit collection rate (lower bound of the interest rate corridor) at 3.0 percent, and the bank rate (upper bound) at 6.5 percent.

The existing requirements related to the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) have also been left unchanged. However, considering the current liquidity position of the financial system and recent reforms in open market operations, banks and financial institutions will now be required to maintain at least 90 percent of the daily CRR.

In addition, in line with the amended provisions of the Banking Offence and Punishment Act, 2008, the NRB will soon draft and issue new procedures for verifying cheque dishonour cases.

The central bank has reiterated that it remains committed to maintaining a cautious and balanced monetary policy stance, guided by the evolving domestic economic and financial outlook.