Steel mills in Nepal may be affected by a recent policy measure by Nepal's central bank Nepal Rashtriya Bank. As per the new policy, banks' cash deposit rate (CDR) and cash loan rate (CCR) have been changed. Previously, banks were allowed to lend 90% of their deposits plus equity. Now, however, the dollar loan has been brought into the 90% loanable component as the government has also removed the amount of capital.
For example, if a bank had a capital of 800 crore NPR and market mobilized deposits were 8,000 crore NPR, it could lend 90% of the total 8,800 crore NPR.
A source from Nepal said: "The total loanable amount has now decreased by 20%, or NPR in Nepal is around 50,000 crore."
The move was implemented in an attempt to secure banks with sufficient liquidity.
How will Nepal's steel industry be affected?
It was learned that even some of the previously sanctioned loans of steel producers were not paid.
Trade channels will not be able to open new LCs as per their requirements and manufacturers will eventually have to cut production due to less demand and purchases.
In case of lack of financing, it is understood that the producers will not be able to stock enough raw materials.
No new home or infrastructure project loans are currently used in Nepal. This segment has also been hit, along with infrastructure, as mostly all housing purchases are financed by housing loans. As a result, residential and infrastructure projects may slow down, which may affect the demand for construction steel in Nepal.
It has been learned that under normal conditions, the demand for housing and construction projects will increase by 30% compared to the previous year.
Sources from Nepal said, “The whole economy will shrink by 20% as there will be much less use of credit.
"Undoing this new policy could possibly be a way out of the crisis," he said.
Many feel that banks may have to attract new deposits to get through the crisis. However, even if the current fixed deposit rate of 11% is increased to 13-14%, banks will have difficulty in mobilizing deposits due to the decrease in demand.
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