Real estate and stock market may get some policy relaxation from Nepal Rastra Bank (NRB) in its mid-term review of the monetary policy.

Bankers, realty traders and stock market investors have been urging the central bank to help revive the two sectors facing downturn. Of late, there has been a significant drop in realty trading and borrowers are facing difficulties in repaying loans following continuous bearish trend in the stock market.

“The monetary policy review will adopt some flexible policies, giving bankers some more time to reduce their loan exposure to the realty sector,” said NRB sources. “The review will relax the margin lending related provision to help the stock market.”

NRB Governor Yubaraj Khatiwada has been saying that the central bank will do its bit to revive the stock market.

According to the source, the policy will not say anything specific about the measures to address issues of realty and stock market. “Directives to be issued latter will have specific measures,” said the source.

As per the existing provision, banks should reduce their loan exposure to the realty sector, including land and housing, to 30 percent within the current fiscal year and 25 percent next fiscal year.

The average loan exposure of commercial banks to the realty sector stands at 20 percent, while that of development banks and finance companies is at 30 percent, according to the NRB. This means commercial banks have invested more than Rs 100 billion in the realty sector, while development banks and finance companies have lent Rs 37 billion. “The central bank may also ease the provision regarding loan repayment, allowing borrowers to reschedule their loans,” said the NRB source.

For the stock market, the measure under consideration is easing the provision regarding margin lending (lending against stocks as collateral), allowing borrowers to renew loans if they pay interest regularly. Bankers have been asking the central bank to allow banks to renew such loans without any payment. Currently, those taking loans against shares will have to pay 25 percent of their loans including interest for loan renewal.

The central bank has already adopted some measures such as the provision that banks should not make margin calls if stock price falls up to 10 percent. It has also allowed banks to lend up to 60 percent of the average stock value.

The revision in the monetary policy is also expected to make upward revision of the inflation target to above 9 percent from 7 percent. For the last few months, fuelled by increased vegetable and fruit prices, inflation has touched 11.3 percent mark as of the first half of the current fiscal year. “The revised monetary policy will also reduce the balance of payment target,” said the source. Existing policy has, however, sought to maintain the BoP at Rs 9 billion at the end of the current fiscal year.

source: Shrestha, Prithvi, Man(2011),"Realty, stock market may get respite", The Kathmandu Post,