Laxmi Capital News
NRB yet to increase size of refinancing fund to Rs 20b

Plan to expand fund wasannounced in the monetary policy for Fiscal Year 2017/18

KATHMANDU, Jan 9: Though Nepal RastraBank (NRB) has announced a plan to increase the size of refinancing fund to Rs20 billion, it is yet to pump the additional cash into the fund that providesconcessional financing on priority sectors. 

The size of the reserve has reached onlyRs 15 billion so far. The expansion of the fund could have provided a sigh ofrelief to business sector, particularly priority areas like hydropower, in thewake of skyrocketing interest rates of bank and financial institutions(BFIs). 

Through its monetary policy for thecurrent Fiscal Year 2017/18, the central bank had announced that the size ofthe refinancing fund that the central bank administers will be expanded to Rs20 billion from the existing Rs 10.84 billion. 

The NRB was planning to include theunused Rs 5 billion of Economic Rehabilitation Fund in the refinancing fund andthe remaining amount from the profit of the central bank in 2016/17 to expandthe fund to support businesses. While the central bank has already poured aportion of the cash from its profit of last fiscal year in the fund, it has notbeen able to draw Rs 5 billion from the economic rehabilitation fund. 

Narayan Prasad Paudel, the spokespersonfor NRB, told Republica that the central bank has not been able to draw thefund from the economic rehabilitation fund as some cash in the fund has alreadybeen mobilized for the very purpose it was established for. 

“The NRB has already put the fund fromits profit. But, we have not been able to increase the size as per our targetbecause some money in the economic rehabilitation fund has already been used,”said Paudel, who is also the chief of Banks and Financial InstitutionRegulation Department of the NRB. 

According to Paudel, a total of Rs 250million has already been spent from the economic rehabilitation fund that wasestablished to provide concessional financing service to businesses firms thatwere battered by the 2015 earthquakes and unofficial economic blockade imposedby India. As the fund remained unused for a long time, the central bankannounced its plan in the monetary policy of the current fiscal year totransfer it into the refinancing fund. 

“We are holding consultations with the Ministry of Financeto identify possible sources to expand the fund,” added Paudel.    
As of mid-November 2017, the outstanding refinancing amounted to Rs 8.32billion, according to the NRB. 

Private sector, on the other hand, isworried with the reluctance of the central bank to expand the size of therefinance fund. They say that a larger refinance fund could have insulated themfrom the exorbitant interest rates charged by the BFIs in the wake of lendablefund crunch. The Confederation of Nepalese Industries (CNI) was demanding therefinance fund of Rs 200 billion.

Due to the small refinance fund size,business firms complain that they have to wait in queue to get concessionalloans under this scheme. 

Some bankers also opine that expansionof refinance fund is one of the best ways to address the current shortage oflendable fund. As banks are not required to include the credit disbursed underthe refinance facility in the calculation of their core capital cum depositratio, the increase of the fund will ease the current problem which wasresulted from BFIs reaching to the saturation level, they say. 

“There is already a system in the nameof refinancing fund. Since this helps the government's objective ofchannelizing more credit to productive sector at a cheaper rate, the incrementin the fund size will serve that purpose. It will also ease the currentshortage of lendable fund,” Bhuvan Dahal, an executive member of Nepal Bankers'Association, told Republica.


Source: MyRepublica, 9thJanuary 2018

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