Economics

Bank Rate

Bank Rate is the rate of interest at which the central bank (Nepal Rastra Bank in Nepal) lends to commercial banks and financial institutions, or rediscounts their eligible bills and securities, usually for short periods. It is the rate at which the central bank acts as lender of last resort, and it sets a benchmark for other interest rates. When NRB raises the bank rate, borrowing from it becomes costlier, banks raise their lending rates, credit demand falls and the money supply contracts. When NRB lowers it, credit becomes cheaper and expands. It is therefore an important instrument of monetary policy.

Quantitative Methods of Credit Control

Quantitative (general) methods control the total volume of credit in the economy without discriminating between sectors or borrowers. The main methods are:

1. Bank rate policy. The central bank changes the bank rate to alter the cost of borrowing from it. A higher rate makes credit dearer and reduces borrowing and credit creation; a lower rate does the opposite. It also signals the central bank's policy stance.

2. Open market operations (OMO). The central bank buys or sells government securities in the market. Selling securities absorbs cash from banks, reduces their reserves and contracts credit; buying injects cash and expands credit. NRB conducts such operations through tools like reverse repo, outright sale and standing liquidity facility.

3. Cash reserve ratio (CRR). Each bank must keep a fixed percentage of its deposits as cash with the central bank. Raising the CRR reduces lendable funds and credit; lowering it releases funds for lending.

4. Statutory liquidity ratio (SLR). Banks must hold a minimum percentage of deposits in liquid assets such as cash and government securities. A higher SLR lowers credit creation; a lower SLR increases it.

5. Repo and reverse repo (policy rate corridor). NRB lends against securities at the policy rate and absorbs liquidity through reverse repo, so it steers short-term interest rates and liquidity.

Note: Moral suasion, direct action, credit rationing and selective controls on particular types of lending are qualitative (selective) methods, because they influence the direction and purpose of credit rather than its total volume.

Conclusion

Quantitative methods work through the reserves and cost of funds of commercial banks and so regulate total credit and money supply. NRB uses them singly or together to maintain price stability and external balance and to support growth.

Rastriya Banijya Bank — Assistant (Level 4)

Economic Development Opportunities in Rastriya Banijya Bank

Rastriya Banijya Bank (RBB), established in 2022 BS (1966 AD) as a fully government-owned commercial bank, is one of Nepal's largest banks with a nationwide branch network. Its size, ownership and outreach give it several opportunities to contribute to economic development:

1. Expansion of banking access (financial inclusion): RBB has branches in remote districts and rural areas. It can open more branches and use branchless banking, mobile banking and agent banking to bring unbanked people into the formal financial system. This helps mobilise rural savings and channel them into productive investment.

2. Priority-sector and directed lending: As a government bank, RBB can provide concessional loans to agriculture, small and medium enterprises (SMEs), cottage and small industries, tourism and renewable energy. This creates employment and raises production in the real economy.

3. Financing infrastructure and national projects: RBB can participate in consortium financing of hydropower, roads, irrigation, drinking water and other large infrastructure projects. Long-term credit to such projects accelerates capital formation.

4. Support to remittance and foreign employment: Nepal receives large remittances. RBB can offer remittance-collection services, foreign employment loans and productive investment schemes so that remittance money is used for enterprise rather than only consumption.

5. Digital banking and fintech growth: By investing in mobile banking, QR payments, internet banking and digital lending, RBB can reduce transaction costs, expand reach and support the growing digital economy.

6. Deposit mobilisation and capital formation: With its wide network and government backing, RBB can attract low-cost deposits and convert them into productive loans, thus supporting investment and economic growth.

7. Support to government welfare and subsidy programmes: RBB can act as a delivery channel for social security allowances, subsidised credit and other government schemes, ensuring that benefits reach the target groups.

8. Employment generation: Expansion of branches, digital services and credit programmes directly and indirectly creates employment opportunities in the banking and real sectors.

Suggestions to Make RBB More Effective

1. Strengthen corporate governance: Ensure an independent, professional board, transparent decision-making and strict separation between ownership (government) and management.

2. Reduce non-performing loans (NPLs): Improve credit appraisal, monitoring and recovery systems; use strict recovery measures and restructure weak loans professionally.

3. Modernise technology: Upgrade core banking, mobile banking and digital payment systems; invest in cybersecurity and data protection.

4. Develop skilled human resources: Provide regular training, performance-based promotion and competitive pay to attract and retain competent staff.

5. Improve customer service: Reduce queues, expand digital services, open complaint-handling desks and conduct customer-satisfaction surveys.

6. Strengthen risk management: Adopt Basel norms, maintain adequate capital and liquidity, and conduct regular internal audits.

7. Expand financial literacy: Run campaigns in rural areas so people understand saving, borrowing and digital banking.

8. Increase priority-sector lending: Set clear targets for agriculture, SME and renewable energy lending and monitor them.

9. Reduce political interference: Keep lending and appointment decisions free from political pressure so that loans go to productive sectors.

10. Use public-private partnership and modern banking practices: Learn from commercial banks and international best practices to improve efficiency and profitability.

Conclusion: RBB already has the network, capital base and government support needed to drive economic development. With better governance, technology, risk management and customer focus, it can become a more effective instrument of national economic development.