Verly likely, Nepal Rastra Bank (NRB) will provide refinancing to banks and financial institutions (BFIS) against collateral of their good loans from this week. A senior NRB official said the procedure of providing loans has already been prepared.

With the banking system facing a liquidity crunch, the NRB opened the door for refinancing to ease the crisis. The BFIs are very little into new lending and struggling to provide credit even to ongoing projects in the absence of liquidity.

Three BFIs including Citizens’ Bank International, DCBL and Clean Energy Development Bank have applied to NRB seeking a total refinancing of Rs. 1.19 billion. The three BFIs have sought Rs. 550 million, Rs. 500 million and Rs 140 million, respectively, according to NRB officials.

As per the refinancing criteria, the BFIs can get up to 40 percent of their core capital. “All three have demanded refinancing up to 40 percent of their core capital,” said an NRB official.  They will get the fund from NRB at 7.5 percent interest rate which the BFIs will have to lend to their customer at not more than 10.5 percent interest. They have sought refinancing for providing credit to sectors like hydropower, schools, hospitals, hotels and manufacturing units, according to NRB officials.

Sudhir Khatri, president and chief executive officer of DCBL said he applied for refinancing in the areas of tourism and hydropower sectors, among others. “I hope refinancing will help ease the existing liquidity shortage in my bank,” he said.

NRB sources said the central bank has decided to provide refinancing from its Banking Development Fund initially in which there is Rs.3 to 4 billion reserves. “We are also discussing other sources of fund within the central bank for refinancing,’ said sources. The NRB expects it may have to provide refinancing between Rs. 10 to 12 billion. The BFIs will have to repay the loan along with interest to NRB within six months.

Bankers expect that the liquidity crunch to end in the coming months as increased government expenditure especially in the development sector will bring cash into the banking system.

coourtesy:The Kathmandu Post