In a significant move aimed at promoting financial inclusion and supporting economic growth, the Nepal Rastra Bank (NRB) has announced key revisions to its monetary policy during the third-quarter review for the fiscal year 2023/24. Among the notable changes, the central bank has reduced the risk weightage on vehicle loans and eased the eligibility criteria for home loans.
Vehicle Loan Risk Weightage Reduction: The NRB has lowered the risk weightage on hire purchase loans provided by banks and financial institutions from 125 percent to 100 percent. This decision is expected to make vehicle loans more accessible and affordable for Nepali consumers, potentially boosting the automotive sector and enabling more individuals to own personal transportation.
Expanded Home Loan Eligibility: In a move that could boost the real estate and housing market, the central bank has introduced a provision allowing for the extension of home purchase loans based on a Debt Service to Gross Income Ratio (DSGIR) of up to 70 percent, an increase from the previous limit of 50 percent. This change, subject to the presentation of appropriate evidence, aims to make home ownership more attainable for a broader segment of the population.
Capital Investments and Loan Loss Provisions: The monetary policy review also introduces new provisions for banks and financial institutions. One such provision allows these institutions to sell up to 20 percent of their primary capital in a single fiscal year from investments made in the mid-category. Additionally, the loan loss requirement provision for loans classified as ‘good loans’ has been reduced from 1.25 percent to 1.20 percent.
Policy Rates and Additional Measures: The NRB has maintained the policy rate at 5.5 percent, the deposit collection rate under the interest rate corridor at 3.0 percent, and the bank rate at 7.0 percent, citing current internal and external economic conditions and outlook. Furthermore, the central bank has indicated that it will review the existing provisions related to the import and sale of silver and continue the flexible measures outlined in the annual monetary policy.
The monetary policy review also includes provisions for reviewing the permanent deposit facilities to ensure the effectiveness of the interest rate corridor and providing necessary facilitation for the use of additional instruments to further strengthen the capital base of banks and financial institutions.
These revisions to the monetary policy are expected to have far-reaching implications for various sectors of the Nepali economy, including the automotive industry, real estate market, and the overall financial landscape. As the central bank continues to monitor economic conditions, further adjustments and measures may be implemented to support sustainable growth and financial stability in Nepal.
