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Now collect data on the economic indicators of the country for as many number of years as you have financial

statements. Find economic indicators specified in the report that I forwarded to you. Best wishes

4. Money and Banking


Monetary Policy
4.1 Nepal Rastra Bank has been regularly formulating the Monetary Policy since 2002/03 as per the legislative provision of Nepal Rastra Bank Act 2002 every year. The policy includes subject matters such as credit, foreign exchange, micro-finance, regulation and supervision of banking sector. Monetary policies announced so far have given high priority especially to internal stability (price stability and financial sector stability) and external stability (favourable balance of payments) as their main objectives. In addition, Policies and Programs are designed with priority accorded to other objectives as mentioned in Nepal Rastra Bank Act. Monetary Policy of Financial Year 2010/11 and its Mid Term Evaluation were made public on July 27, 2010 and March 3, 2011 respectively. 4.2 Monitory Policy was formulated for FY 2010/11 giving due consideration to issues such as low economic growth situation, double digit inflation, high deficit on balance of payment, monitory constraint felt in Nepalese economy in the subsequent years, stability in financial system, productive utilization of credit, enhancing financial accessibility and credit guarantees. Likewise the policy had the strategy to provide support to achieve economic growth as envisaged by ThreeYear Plan by securing overall economic stability in the country Monetary Policy was brought into implementation in the fiscal year 2010/11 amid challenges such as risk seen in external sector s stability due to balance of payment deficit, diversion of bank credit flow towards unproductive sectors due to existing unfavorable investment situation, monitory pressure, riskier situation in maintaining fiscal stability due to growing number of banks and financial institutions, possibility of capital flight and low motivation on saving due to lower interest rate and financial inaccessibility to rural sectors.

Salient features of Monetary Policy 2010/11 Provision is made for commercial banks and financial institutions to charge

only 7 percent interest rate against refinancing facility to increase the investment in productive sector. Banks are required to present their action plans with a target of financing 20 percent of their total credit flow in productive sector within three years. 37 Special refinancing rate is set at 1.5 percent, after integrating all the refinancing rates on loans made available to export, sick industries, small and cottage industries, and foreign employee seekers. Simplified Standard Approach on capital fund for all A class commercial banks implemented and made provision for all national level development banks to adopt this approach in parallel with those commercial banks from the beginning of fiscal year 2010/11. Make necessary arrangements for managing the service and benefits provided to operators, chief executive officers and high level officials of banks and financial institutions in a way that the country s financial arrangement can afford to provide such benefits to them and make such benefits fully transparent. The Trust Receipt Credit term has been expanded to 120 days from 90 days. Actions such as ceasing passports and other actions are being made further effective to intentional bank defaulters with loan of Rs. 10 million and above. Arrangements have been made for providing permits to those exporters of goods and services who are interested to open bank accounts anywhere abroad with the deposit not exceeding 5 percent of their total exports. The ceiling for loan amount for poor and micro-enterprises has been raised from Rs. 60,000 to Rs. 90,000 and Rs. 150,000 to Rs. 200,000 respectively. Arrangements have been made to provide interest free loan of Rs. 500,000 to those banks opening their branch offices in the head-quarters of government targeted 22 districts and up to Rs. 10 million to those banks opening their branch offices outside headquarters of these districts by Nepal Rastra Bank. Arrangements have already been made to provide guarantee to the savings of up-to Rs 200,000 deposited in saving and term deposit account at D Class banks and this provision have been made applicable to other banks and financial institutions gradually. Provision has been made that the gap between interest rates provided to the depositors on different saving deposit accounts by any bank or financial institution should not exceed by two percent

Economic and Monetary Targets 4.4 The main objectives of Monitory Policy for the fiscal year 2010/11 are to maintain the foreign exchange reserve at convenient level by achieving surplus balance of payment, keep monitory expansion in balance so as not to exert pressure on price, make necessary liquidity flow arrangement in order to facilitate economic growth. Target was set accordingly to achieve balance of payment surplus of Rs. 9 billion and maintain inflation rate at 7.0 percent. Broad Money Supply of 15 percent was projected on the basis of this assumption. The credit growth rate of the domestic sector was estimated at 15.0 percent for the

fiscal year 2010/11 of which, the growth rate of private sector was projected to remain at 17.8 percent. The inflationary rate was estimated to stand at 9.0 percent, 11.5 percent for monitory expansion while credit growth rate of private sector was 13.3 percent in the mid-term review of the monitory policy issued in mid-March, 2011. Monetary Instrument Implementation Policy 4.5 Compulsory Reserve Ratio retained at 5.5 percent in FY 2010/11 considering inflationary rate, balance of payment and fiscal stability situations while bank rates that are viewed as the indicators of monitory policy guidelines has been increased to 7.0 percent from 6 .5 percent. 4.6 With the objectives of maintaining the financial strength of banks and financial institutions and providing support to the liquidity management, review on Statutory Liquidity Ratio was done in the FY 2009/10. According to this review, commercial banks are required to maintain such ratio at 15 percent, 11 percent for development banks and 10 percent for financial institutions and 6 percent for financial institutions having no authority to operate current account. In the context of providing authority to mobilize deposits to D class banks, 4 percent authorized liquidity ratio has to be maintained by such institutions that have already started deposit mobilization. There has been provision that bank and financial institutions can consider using amount that they have invested in Government Bonds, available cash in vaults, compulsory cash balance and amount higher than that for this purpose. 4.7 The system for th

Instruments Bank Rates Refinancing Rates Export (credit local currency Export Credit (Foreign Currency) Sick Industry Cottage and Small Industries Productive Sector** Cash reserve ratio Standing Liquidity Facility (penal rate)

Fiscal Year 2006/07 2007/08 2008/09 2009/10 2010/11 6.25 3.5 3.25 1.50 3.50
5.00

6.25
2.5 3.25 1.50 2.50

6.50
2.0 *+0.25 1.50 2.50

6.50
1.5 *+0.25 1.50 2.50 7.50

6.50
1.5 *+0.25 1.50 1.50 7.00 5.50 3.00

5.00 2.00

5.50 3.00

5.50 3.00

1.50

Bank And Financial Institution Commercial Banks Development Banks Finance Companies Microfinance Institutions NRB Licensed Cooperatives (limited banking transaction) NRB Licensed NGOs (Dealing in Microfinance ) Insurance Companies Employees Provident Fund Citizens Investment Trust Postal Saving Banks Branches of Postal Saving Banks Total

MidMidMidMidJune June June April 2008 2009 2010 2011 25 26 27 31 58 63 71 87 78 77 79 80 12 15 18 21 16 16 15 16 46 45 45 45 25 25 25 25 1 1 1 1 1 1 1 1 1 1 1 1 117 117 117 117 263 270 283 308

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