Editorial: Republica
Nepal Rastra Bank (NRB) on Tuesday announced a set of measures aimed at breathing new life into the real and financial sectors that plunged into deepest recession after the central bank imposed a number of tough measures to cool down these overheated sectors some 18 months ago. We welcome these measures taken just four days before the end of the current fiscal year as we believe it is the right treatment for the prolonged slump in vital sectors of the economy that has started breeding many ills.

Under the new decision, NRB will not count real estate loans of up to Rs 8 million extended to individual borrowers for purposes of house purchase. The central bank has been enforcing a much stricter set of rules for such loans than for loans to other sectors, to check a possible assets bubble. House builders expect that the extended loan limit, though less than what they demanded, will broaden their customer base, thereby helping revive housing sales that have been almost flat for some time.

Similarly, the central bank has also loosened conditions for renewing home loans extended by financial institutions and has allowed borrowers to renew such loans for another year after clearing only all outstanding interest liabilities. Earlier, borrowers seeking loan renewal were required to pay a quarter of the principal along with interest due. Bankers seem optimistic that the latest policy decision will have a positive impact on their profitability and financial health by reducing the pile of money they have been compelled to set aside from profits against possible loan loss following a tumble in land prices and the failure of many borrowers to service their loans on time.

Similarly, NRB has also withdrawn the cap it had imposed on margin lending, loans issued against stocks as collateral, and has allowed financial institutions to issue loans on their own assessment. This is expected to revive the share market that hit rock bottom after NRB limited such lending to 60 percent of average market price.

We believe these measures respond to the need of the times and will help revive an economy seemingly inching toward recession, leaving aside for now the new margin lending policy. Instead of completely withdrawing the cap, NRB should have increased the maximum, perhaps to 80 percent, and watched the market reaction for some time. We also urge NRB, which has a history of taking eleventh hour decisions when problems come to a head, to be extra vigilant over how the latest policy changes play out on the economy as a whole.

 source: Republica:Editorial (2011)," NRB's easier loan policy ", myrepublica, 14 July 2011