As per the sources, the central bank is planning to cut down some of the facilities provided by the monetary policy of the current FY citing improper utilization and deteriorating health of banking sectors.
The domestic stock market is highly affected by monetary policy. As the time is nearing, stock investors are in wait and see mode.
The central bank is preparing to tighten margin lending through the upcoming monetary policy. The margin lending limit was increased from 65 percent to 70 percent in the current FY’s monetary policy. However, the central bank has given an indication of tightening the limit in the upcoming policy.
The bank signaled the move in the third quarterly review of the policy itself. As per the bank, it is tightening the limit to minimize the risk BFIs possess when investing in weak listed companies during the current bullish period.
In recent time, the margin lending of BFIs is increasing. The margin lending has doubled in the last one year. BFIs have invested Rs 100 billion by the month of Jestha. NRB has shown concern about the increasing investment of BFIs in the stock market which has elevated the risk by limiting the margin lending. However, the stock investors are against the NRB move.
In order to safeguard both investors and BFIs, NRB has two options. One is to reduce the limit and another is to change the base and system of margin lending.
The first one is tried and tested one which will surely upset the stock investors. Another one is to issue margin lending on the basis of the net worth of the share unlike the existing price of the share. If BFIs issue margin lending on the basis of the net worth of the share, they will invest in strong listed companies with good net worth.
When the BFIs steer their investment in good companies, it will benefit them as well as the stock market. It will also diminish the overall financial risk foreseen by the central bank.
