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The first quarter review of Monetary Policy 2023/24 aims at facilitating banks and financial institutions, which have lending capacity of around Rs 300bn, in credit expansion.

The Nepal Rastra Bank (NRB) has taken a host of measures ranging from reducing rates to easing real estate and margin loans in the monetary policy review. “The central bank has adopted a flexible policy on interest rate corridor as banks have not been able to expand credit as expected,” Nepal Rastra Bank (NRB) Governor Maha Prasad Adhikari said. But those measures have not been proved effective. 

The private sector has been saying that tight monetary policy adopted by the central bank even while the external sector was improving was impeding economic activities in the country. To address the grievances of the private sector, the central bank has lowered the interest rate from 7.5 percent to seven percent. Policy rate too has been reduced to 5.5 percent from 6.5 percent, while deposit collection rate has been reduced to three percent from 4.5 percent.

The first quarter review has also made arrangements to reschedule and restructure loans of good borrowers, who have been unable to pay their loans. The central bank has also instructed banks to provide concessional housing loans to earthquake victims.

Industrialists have welcomed new provisions taken by the monetary policy. Former banker and banking expert Parshuram Kunwar Chhetri, however, called for honest implementation of the monetary policy provisions. “The central bank has reduced policy interest rates to 6.5 percent from seven percent in the monetary policy for the current fiscal year. But the banks increased the rates instead of lowering them,” he added. “In mid-July, the interest rate on individual fixed deposits was 9.98 percent, but banks raised it to 10.26 percent in September.”

Nepal Bankers Association Vice-president Santosh Koirala is of the view that  reduction in policy rates have put pressure on commercial banks to reduce rates. “The provision will provide relief for borrowers. Interest rates will likely come down when banks revise their interest for the month of Magh,” Koirala, who is also the CEO of Machhapuchchhre Bank Ltd, said. “The easing of realty and margin loans will also increase demand for loans.”

The central bank has reduced weighted risk of realty loans and margin loans from 150 percent to 125 percent. This will increase the capacity of banks and financial institutions to extend credit of Rs 40-50bn toward the sector. The decision to raise the monthly installment income ratio for housing loans to 60 percent from 50 percent will enable even low income users to access housing loans.

Banks and financial institutions will be allowed to give residential house loans of up to Rs 2.5m for the reconstruction of houses damaged by the November earthquakes. Banks aren’t allowed to charge a premium of more than two percentage points on the base rate for such loans. Likewise, only people designated as ‘earthquake-affected’ by the authorities concerned can avail such loans.

Banks are also allowed to spend a maximum of 40 percent from the amount deposited in their corporate social responsibility funds from the profit generated in 2022/23 and 2023/24 for reconstruction of public buildings like schools, hospitals and health posts damaged by the earthquake. The central bank has also said it would review the limit on domestic remittances and non-deliverable forward transactions.

Federation of Nepalese Chambers of Commerce and Industry (FNCCI) President Chandra Prasad Dhakal said that the first quarter review has addressed institutional demands placed by them. “The direction taken by the first quarter review is positive. We are now waiting for implementation of the new provisions,” Dhakal added.

Rajendra Malla, president of Nepal Chamber of Commerce, said reduction in policy rate will help to bring interest rates down. “The weighted risk on realty and margin loans should have come down to 100 percent,” he said. 

Rajesh Kumar Agrawal, president of Confederation of Nepalese Industries, said the onus is now on banks and financial institutions to reduce rates. “Earlier, banks had increased rates even when the central bank had lowered them,” he said. He added that the policy provisions in the first quarter review will provide relief to the private sector.

The price of gold has dropped by Rs 500 per tola in the domestic market on Monday.

According to the Federation of Nepal Gold and Silver Dealers’ Association, the yellow metal is being traded at Rs 117, 000 per tola today. It was traded at Rs 117, 500 per tola on Sunday.

Meanwhile, tejabi gold is being traded at Rs 116, 450 per tola. It was traded at Rs 116, 950 per tola.

Similarly, the silver is being traded at Rs 1,410 per tola today.

The share market has been closed for the whole day today following the increase of the Nepse index by six percent.

The trading was closed after the index, which started to rise continuously after the opening of the market on Sunday, increased by six percent in less than one-and-half-hour.

There is a provision to close the market for 20 minutes if the Nepse index increases by four percent in the first hour, 40 minutes if it is increased by five percent in two hours and for the whole day if it is increased by six percent.

The shares were traded for only nine minutes today.

Pragya Ratna Shakya, 39, is the Chief Operating Officer (COO) at NIC Asia Capital Limited. He has over 14 years of experience in realty, stock brokering, management consulting, and investment management. Before his current role, he spent seven years at Siddhartha Capital Limited, overseeing business development, marketing, and operations. He is an expert in mutual fund management, portfolio management, and corporate advisory. Shakya talked to Babita Shrestha from ApEx about how one can achieve financial freedom.

What is the key factor you should consider to maximize financial growth? 

Saving and investing are important. Saving money involves storing it securely for future needs, with a low risk of losing its value. On the other hand, investing comes with risks but also the potential for higher returns. Investments generally have long-term goals, such as for a child’s education, planning for one’s retirement, or future unforeseeable needs. So, if you’re aiming to maximize financial growth, you should prioritize financial education and learn about savings and investments.

Could you brief us about the available saving and investment options in Nepal?

In Nepal, the most common options for savings and investments often involve utilizing Banks and Financial Institutions (BFIs) through fixed deposits or savings accounts. Though they offer modest returns, these might not provide returns that effectively combat inflation. Besides that, investment in stocks and mutual funds can be another viable option. Yet, compared to developed nations, Nepal currently lacks innovative financial instruments. To curb purchasing power loss, you may consider alternative investment areas available such as public equities, private equity/venture capital, debt instruments, private real estate, mutual funds, endowment insurance, and bullions.

What are some financial challenges that youngsters face and how can they be addressed?

In Nepal, approximately two-thirds of the population are in school, or college, or are planning to enter the workforce, which means they might not have disposable income for investments. The fundamental challenge is financial literacy and awareness. Another significant challenge is finding and selecting beneficial investment areas due to limited investment avenues as well as a lack of idea of diversification. To address these challenges, it’s important to prioritize budgeting, establish an emergency fund for financial security, adopt a diverse investment approach, stay informed about financial trends, and seek professional advice for better financial decision-making.

In the context of Nepal, what are the accessible and beginner-friendly stock market investment options that youth can consider for their initial financial ventures?

If you want to start your investment journey, Initial Public Offering (IPO) and Mutual Funds investments could be the safest options. Both investments can be started at as low as Rs 1000. All you need are a bank account, a demat account, and a Meroshare account.

If you want long-term financial growth, you need to understand the significance of mutual funds. These funds represent a collective investment from numerous investors, guided by strict regulations from the Securities Board of Nepal (SEBON) and the fund’s specific mandate. Investing in mutual funds offers benefits like high liquidity, diversification, tax exemptions in mutual fund income, stable dividend income, risk management, professional management, transparent investments, and independent audits of each scheme.

Could you give us an example of one potential scheme youngsters can invest in?

Many banks provide different services. For instance, NIC Asia Capital has recently introduced fund management schemes like NIC Asia Growth Fund-2 (NICGF-2) with the theme of ‘Ahile Lagani Nagarey, Kahile Garnrey?’ where you can apply with amounts ranging from as low as Rs 1000. Your fund will be managed by best-in-class professionals with experiences in both national and international capital markets. It’s safe to say that young investors can just start their investment journey from such mutual fund investments.

Is there any financial advice you would like to give? 

For young individuals in Nepal, a balanced approach to investment and saving is crucial. Always have a proper budget and plan for your funds from an early age. If you don’t have a big sum of money to invest, you can always start small. But start early, invest regularly, and for the long term. Know your risks and return objectives while implementing a diversification strategy in your investment portfolio, and periodically review and rebalance it. Since fluctuations in the market are part of the investment journey, you need to maintain a long-term perspective.