In the Monetary Policy 20145-16 unveiled on Thursday, the central bank also fixed the minimum paid-up capital requirement at Rs20 billion for the bank.

The government plans to establish the bank by merging Hydroelectric Investment and Development Company Limited (HIDCL) and NIDC Development Bank, with possible participation of the private sector.

However, the monetary policy has stated it would open the door for setting up the bank with both domestic investment and joint-venture with foreign companies.

In the annual budget two years ago, the government had announced plans to convert NIDC into an infrastructure development bank, but the central bank had expressed reservations.

Although the monetary policy unveiled by NRB Governor Chirajeevi Nepal on Thursday announced a number of measures to boost credit to the productive sector and financial stability, it didn’t announce any new measures to manage excess liquidity in the banking system, which is currently more than Rs100 billion.

It has given continuity to the deposit collection instrument and has talked about issuing Nepal Rastra Bank (NRB) bonds if instruments such as treasury bills and bonds were inadequate.

The bankers have long been complaining about the inadequacy of existing debt instruments. As the government didn’t raise all planned internal loans due to its failure to spend already available resources, bankers complained they were not getting enough debt instrument to invest 20 percent liquidity after maintaining the credit-to-deposit ratio at 80 percent.

“Even when we have massive excess liquidity, we have not got enough debt instruments to make investment, forcing us to keep the funds idle,” said Upendra Poudyal, president of Nepal Bankers’ Association.

With international institutions like International Finance Corporation and Asian Development Bank planning to issue Nepali rupee bonds, the central bank has allowed banks and financial institutions (BFIs) to count such investment under the statutory liquidity ratio (SLR).

Amid fears of price rises due to a surge in economic activities in the reconstruction process, the central bank has been resistant in taking any concrete measures to control prices. It has aimed at expanding credit to private sector by 20 percent against 17.8 percent last fiscal year, which is expected to create more demand and contribute to higher inflation.

However, central bank officials said they were hopeful low inflation levels in India over the last one year, could help maintain price at controllable level here as Nepal imports two-thirds of goods from India. The central bank has targeted to maintain the inflation at 8.5 percent.

The policy also announced providing special refinancing to BFIs at just 1 percent to expand low-interest credit in Bajura, Kalikot, Bajhang, Humla, Doti, Achham, Mugu and Baitadi having high density of poverty and 114 VDCs of bordering districts in Tarai and four municipalities.

The monetary policy also talked about increasing paid-up capital requirement for micro-finance institutions without mentioning the size. The central bank has already implemented the spread rate provision in D class FIs.

To enhance financial stability, the NRB announced increasing the amount for individual deposit insurance from existing Rs200,000 and lower premium.

Going against the bankers’ demands, the central bank increased lending to be made in the deprived sector by 0.5 percentage points, but allowed categorising the credit to commercial farming under deprived sector lending.

The NRB also announced making arrangements replacing the debit, credit and pre-paid cards based on magnetic strip with chip-based cards within mid-October.

Monetary Policy 2015-16

- Paid-up capital for infra dev bank at Rs20b

- CRR, SLR not changed

- Deprived sector lending percentage hiked-

- Inflation target of 8.5pc

- Chip-based cards by Mid-October

- Paid-up capital for D class FIs to be hiked

- Spread rate policy for MFIs

- Special supervision of too-big-to-fail banks