सिंहदरबार संवाददाता
After the Nepal Rastra Bank introduced the monetary policy for the current fiscal year on July 11, there have been reactions that it will make the entire economy dynamic. Almost all the private sector umbrella organizations are praising the monetary policy. Prime Minister KP Oli has also called it a ‘monetary policy ahead of time’. Finance Minister Bishnu Poudel has also thanked the Rastra Bank for the good monetary policy.
Historical enthusiasm is being seen in the stock market. Singha Durbar has had a detailed conversation with Nepal Rastra Bank’s Deputy Governor Bam Bahadur Mishra about the monetary policy that has succeeded in pleasing everyone. Here is a Summary of the conversation with Deputy Governor of the National Bank Mishra:
The National Bank brought the monetary policy by overcoming events like a long tug of war. Who was this monetary policy specifically for?
It is a process rather than a long tug of war. The National Bank issues the monetary policy annually. According to our working procedure, we brought the monetary policy on 11th of Shrawan, within the provision that it should be brought within 15 days of the end of the financial year.
Who was this policy introduced with 1,2,3 in mind within the ‘radar’ of the benefactors?
Monetary policy is introduced for the overall economic system rather than the radar of the benefactors. This includes businessmen, industrialists, the general public and all of us.
But at a glance, it is heard in the market that the stock market, automobiles and real estate are seen at the center of it. You yourself have said that all these are non-productive sectors, right?
If we talk about the past two fiscal years, we were hearing news like Nepal Rastra Bank was tightened, its neck was cut, and there was a landslide through various media outlets. You said that 3 sectors have received more priority now. But the monetary policy has not given such a ‘specific focus’ to the stock market, automobiles and real estate. In the monetary policy, we have also given priority to other sectors of the economy as per the need. But those three issues have only been seen in a little more interest.
But has the stock market already ‘reacted positively’?
The market had already responded in a different way in 7 to 8 working ‘days’ before the monetary policy was issued. This is a good response.
Why did you wait 2-3 years to bring such a monetary policy? Are there any people who question your intentions?
Yes. I am also hearing this question. During Corona, everything came to a standstill. We brought a loose monetary policy to use some out of the box. Due to that monetary policy, the ‘consequence’ of it was a slight increase in shares, real estate loans.
In the second and third years after that, as growth increased rapidly, our foreign exchange reserves had also fallen to a point where they could cover 6 months of goods and services. We call foreign exchange reserves that can cover 7 months of imports of goods and services normal. After that 6 months, 6 and a half months, we also had to be vigilant. That was a data-based analysis. We did not dream about it at night and wake up in the morning and prepare a monetary policy. It is not like we will relax the monetary policy in the morning after seeing it in a dream.
The government is raising 340 billion rupees of internal debt this time, you have said that you will expand credit by 12.5 percent, how is that possible?
We have said that we will increase private sector credit by 12.5 percent. That means expanding credit by 654 billion. We have said that we will expand credit by 654 billion, excluding the internal debt raised by the government. Deposit growth is going well. If remittances increase like this, we will be able to meet our target this year.
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## Is it your projection that remittances may decrease? And how is that possible?
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## We have said that there is a possibility of problems in some traditional sources of remittances. Some policy issues are coming up in Malaysia. However, it is said that Yemen has now opened up. Now good money is also coming from Korea. It is also coming from Israel and Australia. In this way, 1 trillion Nepali rupees billion comes in monthly. After that much money comes in, our foreign exchange reserves are balanced. There is also a target for imports. The government’s revenue is also linked to the growth of that import. Looking at it that way, it doesn’t seem like there is a problem.
The Ministry of Finance and you have also admitted earlier that the impact of credit expansion has not been seen in the economy. What measures has the monetary policy put forward to stop the credit expansion that does not increase production and employment, and does not make a significant contribution to GDP?
Yes, there is criticism that our credit expansion did not create jobs, did not increase production, and did not make a significant contribution to the economy. This issue should be viewed in two ways. As we see it, we have been seeing an average growth of 4 percent in the last 40-50 years. But in the 15th and 16th Five-Year Plans, we are saying that we should have 8 percent growth.
How much money is needed for that. Let’s calculate that. We have said that we will generate 28 thousand megawatts of electricity, how much money is needed for that? It seems that there is no formulation in all these things. We should set a good target. After the expansion of credit, its impact and contribution should be seen in the economy. But during the Corona period, the contribution of credit expansion in the economy was not seen.
At that time, there was a trend of taking loans and paying off loans. After taking loans and paying off loans, the contribution of credit expansion in the economy was not seen. But even if you only take out a loan and consume it, it will contribute something to the economy.
It has been seen that construction entrepreneurs will benefit from the monetary policy, banks have been able to count the interest earned up to Shrawan as last year’s income, and both microfinance companies and borrowers have received concessions. Why didn’t this topic come up a little earlier? Why did it come up today?
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## The National Bank was accused of everything until a couple of months before the monetary policy came. Construction entrepreneurs are dying, people in microfinance are dying. There has been no restructuring of loans, what are you (National Bank) waiting for? We were facing thousands of questions. All we do is treat the sick.
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## If you have a problem with your eyes, you should get your eyes treated. If you have a problem with your ears, you should get your ears treated. The National Statistics Office had shown negative growth in Nepal’s manufacturing sector and construction sector in the last few quarters. Therefore, we have put forward ‘specific’ measures to treat the two sectors.
The process of that treatment is that the government has not paid them. Since it has come to know that some money is yet to be received, pay it to the machine. It has been said that even the payment will be calculated on it. Another thing is related to the blacklist. The problem will not be solved by simply blacklisting the bank accounts as soon as the check is issued and there is no money in it. We have done so based on the conclusion that it will sometimes cause more problems.
The new system regarding the blacklist was seen to create distrust in check transactions and encourage cash transactions. It was seen that those who write checks and cash them even though there is no money in the account are more likely to be happy, why did they do that?
It was seen that if one of the joint venture partners is blacklisted, the other is automatically blacklisted, which has hurt the businessmen. There were widespread complaints that this would make the businessmen unable to do any more work. We also have a provision of an act. According to the Banking Offences and Punishments Act, there is a provision to make dishonouring checks a banking offence.
The National Bank has made a regulation and made a provision to blacklist those who dishonour checks. Currently, 90 percent of people are blacklisted for dishonouring checks. Therefore, we have raised the issue of imposing banking offences on those who dishonour checks but not keeping them on the blacklist.
But isn’t giving a blank check without money a crime in itself? If so, would those who cash checks even if they don’t have money be encouraged?
It is not our policy to encourage those who dishonor checks. It is not that we will not do anything by not blacklisting them. We will arrange for another type of action for them. Once they are blacklisted, the account cannot be opened, the money in it cannot be used. They cannot deposit, withdraw, or transact. We have made new arrangements based on the conclusion that it did not solve the problem. We will bring the detailed issue in the circular.
When will the circular be issued?
It will be issued now. Now it will be issued in batches. First, we will issue microfinance. Microfinance also has problems. The problems will be addressed. We will also implement some study reports. We cannot say that we will not pay ‘loans’ forever, but we have also said that we will re-schedule some of them. It will be left for some time.
Will all the circulars come within 1 week?
I say everything. But important circulars come within 1 week. All circulars come by the end of Shrawan.
Some bankers complain that why has the National Bank become so ‘rigid’ in NDF (non-derivable forward)? Why did they make it 30 percent like before when liquidity was in flux? Wouldn’t it have been better if NDF had been relaxed instead of paying interest and taking repo?
At that time, we gave NDF up to 30 percent of the core capital, when the core capital of banks was only 8/10 billion. If we give 30 percent NDF to banks that currently have a core capital of 40-50 billion, there is a big risk. We have imposed a 15 percent cap on NDF based on the core capital of the banks.
Isn’t the core capital of all banks the same size? Wouldn’t it have been better if NDF was given according to the size of the core capital?
We are currently absorbing more than 300 billion from banks. We also need to look at stability. We have not brought this in after thinking and considering. But the issue of providing NDF based on the size of core capital can be considered.
Did you understand the needs of the market by looking at financial stability when introducing monetary policy?
Financial stability is our first priority. We have been addressing many issues through quarterly reviews. We had introduced various types of capital tools before. This time, we have to increase the loan rate from 5.5 percent to 12.5 percent. Because the government has said that the economic growth rate will be 6 percent this time. If the current measures do not work and a disaster strikes, we also have options to improve it through the first quarterly review.
You said that you would allow the issuance of preference shares for banks and financial institutions that are under pressure from capital funds, but you stopped the idea of increasing capital (rights), why?
We have said that we will allow the issuance of preference shares subject to one condition and condition. After some banks and financial institutions demanded it, we have introduced the provision of preference shares to see if it will work. Another thing is that we have not decided and stopped the issue of increasing capital.
We have not said that we will not allow ‘rights issues’. It can be discussed and some discussions are underway. There is already talk that ROE is declining because banks are ‘overcapitalized’. We are also aware of what will happen if we allow capital to be added through rights issues.
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