Share investors welcomed the monetary policy unveiled by Nepal Rastra Bank (NRB) on Wednesday, but said that it failed to address the concerns of the market fully when stocks were in free fall. The Nepal Stock Exchange (Nepse), the country’s sole secondary market, has been wallowing in the doldrums for a long time.

Analysts blamed the extended bearish trend on the high interest rates charged by banks on margin lending and frequent margin calls. As a result, the Nepse index has dropped from a high of 1,881.45 points to 1,200 points.

Among the provisions in the monetary policy that could affect the secondary market, there are several policy shifts designed to stabilise interest rates. The monetary policy has barred banks from making margin calls when share prices fall by up to 20 percent. This means that the banks cannot ask investors to deposit more cash or pledge additional shares when share prices drop by up to 20 percent.

Meanwhile, the central bank has reduced the limit on margin lending. From now on, banks cannot issue more than 25 percent of their core capital as margin loans. Previously, the threshold was 40 percent.

NRB has also reduced the personal overdraft loan limit to Rs5 million from the existing Rs7.5 million. Similarly, the central bank has made it mandatory for commercial banks to get a credit rating from internationally recognised institutions. It also allows commercial banks to obtain a brokering licence if they open a subsidiary company. Ambika Prasad Poudel, chairman of the Nepal Investors’ Forum, said the monetary policy was not capital market friendly. “The introduction of measures to lower the interest rate is a welcome move. However, a reduction in the margin lending limit could adversely affect investments in the secondary market,” Poudel said.

According to Poudel, investors were hoping that the central bank would set the margin call threshold at a minimum of 50 percent fall in share prices. “The NRB regulation already has set a limit of 30 percent, which now has been brought down to 20 percent,” said Poudel. He urged the central bank to allow commercial banks to get brokering licences soon.

Tara Fulel, vice-president of Share Laganikarta Sangh, said reducing the cash reserve ratio to 4 percent from 6 percent, allowing banks to accept 25 percent of their capital in Indian and other foreign currencies and extending the loan portfolio limit of microfinance institutions are among the bright sides of the monetary policy. “However, it fails to address the investors’ demand to increase the loan margin to 80 percent of the share market value and revise the criteria for share valuation while issuing loans against shares by banks,” Fulel said.