Major highlights of Monetary Policy 2077-78

Policy targets 

• Inflation at 7 percent. 
• Maintain foreign exchange reserves sufficient to cover the prospective imports of goods and services for at least 7 months. 
• Domestic credit growth at 20 percent and broad money supply growth at 18 percent. 

Monetary Instruments

• Interbank rate as the operating target. 
• The lower band of interbank rate is set at 1 percent, and the upper band is set at 5 percent. (Revised) 
• Bank rate at 5 percent and deposit collection rate at 1 percent. (Revised) 
• Repo rate reduced to 3 percent. (Revised) 
• Cash Reserve Ratio stands at 3 percent. (Revised) 
• Statutory Liquidity rate stands at 10, 8, and 7 percent for commercial banks, development banks, and financial companies respectively. 

Real Sector

• Agriculture credit as a percentage of the total loan is set as 15 percent by 2080 Asar end. (Revised) 
• Loan loss provisioning of 0.2 percent in the first year and 0.6 percent in the second year for the loan disbursed to horticulture. (New)
• Agriculture Development Bank to be developed as the Lead Bank of Agriculture Sector. (New)
• Kishan Credit Card introduced and provision for issuance of Agriculture Bond. (New) 
• Minimum 10 percent loan to the energy sector by 2081. (Revised) 
• Provision to issue energy bond by commercial banks  (New)
• Minimum 15 percent loan to the tourism sector by 2081 (loan below Rs. 1 crore). (Revised) 
• Development banks shall disburse 20 percent and finance companies shall disburse 15 percent of total credit to agriculture, micro-enterprises, cottage industries, and small enterprises, energy, and tourism sector by 2081. (New)
• Reservoir based hydropower project shall get a loan at base rate plus 1 percent point.  (New)
• Hydropower projects that start exporting electricity shall get loans from BFIs at base rate plus 1 percent point for 5 years.  (New)

Regulation and Supervision

• Concessional loan at 5 percent. (Revised)
• BFIs going for a merger are required to maintain the CRR net of 0.5 percent, SLR net of 1 percent, institutional deposit limit extended by 10 percent, per institution deposit collection limit extended by 5 percent, and no cooling period. (Revised)
• CCD ratio increased to 85 percent from 80 percent. (Revised)
• BFIs shall declare and disburse cash dividend only up to 30 percent of the net distributable profit of FY 2076.77 (not exceeding the weighted average interest rate of the deposit maintained by the said institution in Ashad end 2077). (New)
• Microfinance financial institutions shall disburse loans at not more than 15 percent. (Revised)
• Share pledged loan limited extended to 70 percent, which was 65 percent earlier. (Revised)
• The time-period for commercial banks to issue at least 25 percent debenture of their paid-up capital by Ashad 2077 has been extended up to 2079 Ashad end. (Revised)
• The valuation of shares for share collateral shall be made based on the average price of the last 120 days or the prevailing market price of the stock whichever is less. (Revised)
• 20 percent of the total refinancing based on customer assessment. Provision to provide up to 70 percent through commercial banks, development banks, and finance companies, and up to 10 percent through microfinance financial institutions. (New)  
• The existing loan loss and risk assessment system will be made flexible for the loan disbursed in the projects related to infrastructure construction. (New)
• The existing risk burden for operational risk, market risk, and overall risk will be reduced from 5 percent, 3 percent, and 5 percent to 3 percent, 1 percent, and 3 percent respectively. (Revised)
• BFIs shall publicly disclose the details of concessional loans and refinancing every quarter through the website. (New)

COVID Response

• Refinance facility equivalent to five times the loan disbursed to a sector hit by COVID-19. 
• Refinance loan at 1 percent to export-based industries, 2 percent to small and cottage enterprises. 
• Special arrangements will be made for the classification of loans so that the good loans shall not be degraded. 
• The loan which is categorized as pass on Poush end can be counted as pass however the provision of such loan (despite non-recover of overdue) shall be 5 %. 
• Arrangement for the extension of the grace period on loan installment and interest payment by 2 years in case of tourism-based hotels, 1 year in case of loans in highly affected areas, 9 months in case of the loan in the moderately affected area, and 6 months for the low affected area. 

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