The Royal Monetary Authority (RMA) has imposed a temporary sanction on the commercial banks in making Rupee denominated transactions. This is in light of the Bhutanese economy grappling with Rupee crisis.
The governor of the central bank, Daw Tenzin, said: “Bhutan is selling less and importing more. It is important that Bhutanese treat Indian Rupee as a foreign currency which needs to be earned.”
He said that unlimited convertibility of Ngultrum into Rupee by the private consumption through the banking channel is driving the economy to the corner.
The chief executive officer of Bhutan National Bank (BNB), Kipchu Tshering, said the central bank has been concerned and trying to rationalize the use of available Rupee.
He said the problem of Rupee crisis will have some grave impacts on the national economy.
Kipchu Tshering said his bank is aware of the problem and took some measures since a month ago. For example, BNB slashed vehicle loans from 75% to 50% and 60% for the new and old clients.
Also, the construction loan ceiling has been axed to 60% from 75% financing before. That too with the clients mandated to provide their equity first.
He said the central bank has tightened the banks to the fullest as far as the monetary policy is concerned. However, he said it is not enough given that the fiscal policy is weak.
He added that proper taxation policies on sectoral basis is urgent to find solutions to the problem.
The chief executive officer of Bank of Bhutan (BoB), Passang Tshering, said the bank has stopped making transactions that require Rupee in line with the RMA directive.
To rationalize the use of Rupee reserve, the banks are directed to forward transactions that require Rupee to the central bank daily. And RMA will approve based on the merit of the required transaction.
From the management point of view, the directive adds hassle to the administrative work, said Passang Tshering. First, the bank has to collect remittance letter, submit it to RMA in the givenrequisition format, which delays the customer service.
He said the issue needs to be resolved immediately. However, he says, since it depends on balance of payment it is uncertain how long it would take to find a solution. “The banking sector will be affected,” said Passang Tshering.
T-bank has already suspended transactions that are Rupee denominated since last Saturday as it ran out of the currency.
The managing director of the bank, Tshering Dorji, said remittances against import of fuel, car, construction materials, and food items cannot be made. He attributes the Rupee crisis to Bhutanese importing more than they sell to India.
NC Member Rinzin Rinzin said the Rupee shortage problem cannot be solved overnight. He says the country needs corrective measures on policy review on the issue and implement it, adding the country might have to consider selling the US$ reserve.
RMA sold US $ 200 million a few months ago in an attempt to address the Rupee crisis problem.
Apart from increasing imports from India, Rinzin Rinzin says investment in hydropower projects is draining the Rupee reserve. Until the ongoing hydropower projects are commissioned, RMA will continue to grapple with the problems related to Rupee shortage, he said: “We need a major policy revamping.”
Some experts have been saying in the media that the country needs to cut down imports (especially vehicles), the government should adopt austerity measures and improve the productivity of the agriculture sector.
In the last Parliament session, the National Assembly deliberated the Rupee crisis. The National Council was supposed to study the issue. However, it was dropped after the finance ministry reported the government will take up the study.
The task force formed by the government is said to have presented the findings on the Rupee crisis to the cabinet yesterday. And a meeting involving all relevant stakeholders, including financial institutions, is expected to take place tomorrow, 8th March.