MAN suggests for accommodative monetary policy to spur growth

Nepal Rastra Bank Governor Dr. Biswo Nath Poudel stated that the upcoming Monetary Policy 2025/26 will boost economic activity. During the Pre-Monetary Policy Discussions hosted by the Management Association of Nepal (MAN) on July 7, Governor Poudel remarked that it is an opportune time for Nepal to advance its economy, citing strong economic indicators.

“Banks have ample liquidity, interest rates are low, inflation is minimal, foreign exchange reserves are at a record high, and, most importantly, there is a willingness among stakeholders to move forward,” Governor Poudel said. “However, credit growth remains low and potential borrowers are adopting a wait-and-see approach, resulting in a slow overall pace of economic development.”

The governor also expressed concern over the rising non-performing loans in directed sector lending. “We have established sound policies to align credit allocation with productive sectors such as agriculture, energy, and small and medium enterprises,” he explained. “These sectors, crucial for developing a robust production base and contributing to sustainable development, are struggling with loan repayment challenges.”

He emphasised the need to address wealth/asset concentration, which could lead to market instability and distortion. The governor stated, “We discourage lending concentration and advocate for credit allocation across diverse sectors nationwide to ensure equal opportunities for enterprises to grow and thrive.”

Mohan Raj Ojha, President of MAN, delivered the welcome remarks, noting that the private sector and stakeholders are eagerly anticipating appropriate provisions in the monetary policy to accelerate economic growth.

During the discussions, Birendra Raj Pandey, President of CNI, suggested abolishing the base rate provision to allow banks to offer marginal cost of lending rates. He also recommended maintaining the counter-cyclical buffer and introducing working capital guidelines later with industry and sector-specific provisions, rather than being sceptical of borrowers. He advised Nepal Rastra Bank to form a Monetary Policy Committee for policy formulation and grant banks autonomy to address borrowers’ specific needs, alongside effective regulation and supervision. Pandey also stressed that construction industries should be prioritised to increase employment generation, production and consumption of construction materials, and other positive economic impacts to spur growth.

Furthermore, Hem Raj Dhakal, Vice President of the Federation of Nepalese Chambers of Commerce and Industry, highlighted that enforcing a cap on working capital when businesses are in dire need impedes economic activity. He argued that deferring the working capital guideline is insufficient and that it must align with sector-specific industry needs.

Deepak Malhotra, Vice President of the Nepal Chamber of Commerce, highlighted the detrimental impact of frequent changes to the Loan-to-Value ratio and other regulations, even within the same year, on the real estate and automobile markets. He asserted, “Instead of such inconsistent regulatory provisions and micromanagement of BFIs, the central bank should allow banks and financial institutions to implement facilities based on their borrowers’ needs.” Malhotra further explained, “The current economic slowdown is a consequence of inconsistent policies; for instance, the flexible monetary policy of 2020/21 led to a record 27% loan growth, followed by abrupt stringent provisions introduced by Nepal Rastra Bank from 2021/22, which caused a slowdown in economic activities.”

Ravi Singh, President of the Federation of Contractors Association Nepal (FCAN), requested a moratorium for contractors, citing that disappointing capital expenditure has hindered a positive outlook. Despite this, he noted that the infrastructure sector’s growth appears positive this year, a recovery after negative growth in the two preceding fiscal years. “The government has signed contracts for projects worth Rs. 650 billion but without addressing the issues within the infrastructure sector, other ancillary industries will continue to be affected,” Singh stated. He added, “The fiscal budget 2025/26’s commitment to provide resources for infrastructure projects that have achieved 80% progress is a positive announcement.” He urged the central bank to continue providing facilities to banks as outlined in the Monetary Policy 2024/25.

The Hotel Association Nepal advocated for a lending policy similar to that for agriculture, arguing that the hospitality sector should also be classified as an industry. Youb Raj Shrestha, Treasurer of Hotel Association Nepal, pointed out, “International online portals offering booking services are demanding payments in convertible currency (especially USD), even though they are registered in Nepal. There should be a provision for paying these Nepal-registered portals in Nepali rupees.”

Shrestha also suggested raising the current USD 300 exchange limit at hotels with money exchange licences, especially given the target of high-end tourists. He further highlighted, “While Indian tourists are allowed to bring up to USD 5,000 when entering Nepal, they must be permitted to bring higher denomination INR, as the current provision disallowing INR 100 denominations in Nepal is impractical.”

Mohan Katuwal, Vice Chairperson of the Federation of Nepal Cottage and Small Industry (FNCSI), emphasised the need for an accommodative monetary policy that provides accessible credit facilities to micro, small and medium enterprises (MSMEs). “Although monetary policy aims to support MSMEs, stringent provisions in directives and circulars are impeding the achievement of this vision,” he remarked. He also stressed the importance of deepening financial literacy, noting BFIs’ reluctance to provide credit to MSMEs.

The discussions highlighted the frequent changes in the loan-to-value ratio and other measures, emphasising the need for consistent policies to ensure predictability.

Dhruba Regmee, Head of Sipradi Assured Pvt. Ltd., stated that reconditioned vehicle sales in Nepal are three times higher than new vehicle sales, with approximately 35,000 reconditioned four-wheelers in the market. He noted that commercial banks offer hire-purchase loans for new electric vehicles at a 60:40 Loan-to-Value (LTV) ratio, but they do not provide credit for reconditioned vehicles. “We request the central bank to introduce provisions for hire-purchase loans for reconditioned electric vehicles, similar to those for new ones,” he said. This, he explained, would facilitate trading through reconditioned vehicle companies, where 145 members are organised under the Nepal Recondition Auto Entrepreneurs Association.

Stakeholders also voiced concerns about plummeting interest rates on deposits, which could discourage depositors. Shanta Gautam, a participant in the discussion programme, commented, “Saving rates have hit rock bottom, which could demotivate depositors. Banks and financial institutions should be instructed to provide equal treatment to institutional and individual depositors.”

The Nepal Land & Housing Developers Federation presented three key concerns for the upcoming Monetary Policy 2025/26: the need for loan restructuring and rescheduling, implementation of a loan-to-fair market value ratio, and simplification of the credit and income ratio.

Bidur Dhamala, Acting President of the Nepal Land & Housing Developers Federation, stated, “While the central bank has provided various facilities to other businesses, there is a lack of support to revive the real estate sector, which was shattered by the COVID-19 pandemic followed by destructive floods. This business requires loan rescheduling and restructuring for its survival.” He added, “We request Nepal Rastra Bank to allow lending up to 80% of the collateral, considering the low credit flow in the real estate sector. Additionally, we ask for consideration of income declared by individuals and certification from banks in banking transactions, as people can purchase real estate by selling their properties/assets, and the existing income declaration provisions are impractical.”

Dr. Dilip Raj Poudel, Former Treasurer of MAN, suggested that long-term deposit/saving mobilisers, such as the Employees Provident Fund, Citizen Investment Trust, and life insurance pool funds, should be given opportunities to invest abroad to maximise their funds.

Dinesh Shrestha, President of Nepal Chamber of Industries and Commerce Kathmandu, emphasised prioritising MSMEs. He highlighted issues with working capital guidelines, stating, “The guidelines stipulate that expenses must be released from the current account. An overdraft account can only be debited for vendor payments, not even for employee salaries, which needs simplification.” He also suggested scrapping the statutory margin provision, noting that these funds are held without earning any interest. Furthermore, he urged the central bank to provide an exit facility for borrowers who are unable to renew their loans due to a significant drop in demand.

MAN organised the Pre-Monetary Policy Discussion, attended by Nepal Rastra Bank Governor Dr. Biswo Nath Poudel, representatives from private sector umbrella associations including the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), Confederation of Nepalese Industries (CNI), and Nepal Chamber of Commerce (NCC). Also present were representatives from the Confederation of Banks and Financial Institutions Nepal, Nepal Bankers’ Association, Development Bankers Association, Finance Companies Association, Nepal Microfinance Bankers’ Association (NMBA), Federation of Contractors Association Nepal, NADA Automobiles Association of Nepal, Nepal Land & Housing Developers Federation, Nepal Sharemarket Investors Association, Dairy Association Nepal, Nepal Pharmaceutical Association, and various other commodities associations and stakeholders.

The Pre-Monetary Policy Discussion is one of MAN’s flagship annual events, designed to bring together stakeholders and policymakers.