KATHMANDU, DEC 21 -
Nepal Rastra Bank ( NRB ) has expressed concern at the bull run in the Nepal Stock Exchange (Nepse) that it may be headed towards a bubble. The Nepse index soared to a five-year high crossing the 800-mark this week.
Addressing the opening of the convention of Rastriya Karmachari Sangathan ( NRB ) on Friday, central bank governor Yubaraj Khatiwada said that the central bank was on the alert to prevent a bubble in the capital market due to excess liquidity in the banking sector.
Banks and financial institutions (BFIs) are awash in cash and desperate to increase lending. As demand for loans has remained low from the productive sector, margin lending has grown in recent days.
Speaking at the inaugural, the governor said that the central bank was cautious not to allow the artificial surge in the capital market to continue. “Small investors have also written to us about the artificial surge in the stock market,” he added.
The capital market has been in a buoyant mood since the end of the Constituent Assembly (CA) election. On Thursday, the Nepse jumped more than 200 points to reach 805.65 points, which is the highest in the last five years. The turnover on Thursday, the last trading day of the week, reached Rs 810 million which has raised concern about artificial price hikes by a few investors.
Suspecting an unnatural rise in share prices, Nepse has asked listed companies to inform it about any board decision that may influence their share prices an hour before trading begins. It has also asked for an explanation from a number of listed companies about the sudden jump in the value of their stock.
Khatiwada said that as a majority of listed companies were BFIs, any unbelievable surge in the stock market would attract serious central bank attention.
After former central bank governor Dipendra Bahadur Kshetry too expressed concern about the matter during the event, Khatiwada asked investors to make investment decisions based on the balance sheets of the companies and not on a whim. He also asked them to consider the possible decisions the central bank could take regarding BFIs.
Recently, talk about the central bank implementing Basel III that would require banks to increase their paid-up capital also helped to push up the stock market. However, the measures proposed by the central bank have not spoken specifically about enlarging the paid-up capital.
The governor also highlighted the measure taken by the central bank over the last four years during his tenure stating that criminals in the financial sector had been put on the run while depositors had become more secure.
“Depositor confidence in BFIs has grown which is evident in the fact that deposits have doubled in the last three years,” said Khatiwada. He added that bank loans to the productive sector had also grown over the period.
The central bank has made it mandatory for commercial banks to increase their lending to the productive sector to 20 percent in the next two years. They are also required to increase lending to hydropower and agriculture to 12 percent within that period.
During the programme, former prime minister and senior UCPN (Maoist) leader Baburam Bhattarai praised the move to raise the minimum required lending to the productive sector and urged that lending to the farm sector be hiked.
He expressed concern at the galloping inflation and the easy availability of Indian rupees in the border regions when Indian currency has been in short supply during the last five years.
“The central bank has shown a lower inflation rate, but poor people are finding it hard to make ends meet due to the spine-breaking price rise,” he said. “Poor people have to spend most of their income on food, but it has become very expensive.”
Bhattarai also said that since the easy availability of Indian currency has been attributed to massive gold smuggling, the central bank, which allows only commercial banks to import gold, should explain the situation.
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