KATHMANDU, Dec 8:
Nepal Rastra Bank (NRB) is mulling over putting in place a new arrangement that will facilitate development banks and finance companies based out of Kathmandu to invest in government securities including treasury bills and bonds.
So far, treasury bills, development bonds and other government securities are issued in Kathmandu only. "But the new arrangement will be of temporary nature," said a source.
According to the source, the new arrangement is being worked out mainly to relieve the category ´B´ and ´C´ financial institutions based outside the Kathmandu valley from possible adverse impact of new NRB policy decision, which restricts them from holding interest-earning accounts in any bank and financial institution (BFI).
NRB had asked development banks and finance companies a few months ago to close all their interest-fetching accounts at other BFIs in a bid to force them to focus on core banking operations, rather than re-depositing the deposits mobilized to earn profits. NRB has asked them to comply with the directive by mid-January 2012.
Clearly, compliance will prevent financial institutions from reaping interest earnings that they have enjoyed so far. "But we think institutions based in urban centers will not face its adverse impact because they have multiple investment avenues and opportunities," said the source.
"There are limited investment opportunities in rural areas," said the source, adding that the new arrangement would enable them overcome adverse impacts that might surface immediately.
Apart from enabling them to invest in government securities, a top NRB official said the central bank could also extend the compliance deadline for such institutions for six months, i.e. till mid-July 2012.
Source: Republica
Nepal Rastra Bank (NRB) is mulling over putting in place a new arrangement that will facilitate development banks and finance companies based out of Kathmandu to invest in government securities including treasury bills and bonds.
So far, treasury bills, development bonds and other government securities are issued in Kathmandu only. "But the new arrangement will be of temporary nature," said a source.
According to the source, the new arrangement is being worked out mainly to relieve the category ´B´ and ´C´ financial institutions based outside the Kathmandu valley from possible adverse impact of new NRB policy decision, which restricts them from holding interest-earning accounts in any bank and financial institution (BFI).
NRB had asked development banks and finance companies a few months ago to close all their interest-fetching accounts at other BFIs in a bid to force them to focus on core banking operations, rather than re-depositing the deposits mobilized to earn profits. NRB has asked them to comply with the directive by mid-January 2012.
Clearly, compliance will prevent financial institutions from reaping interest earnings that they have enjoyed so far. "But we think institutions based in urban centers will not face its adverse impact because they have multiple investment avenues and opportunities," said the source.
"There are limited investment opportunities in rural areas," said the source, adding that the new arrangement would enable them overcome adverse impacts that might surface immediately.
Apart from enabling them to invest in government securities, a top NRB official said the central bank could also extend the compliance deadline for such institutions for six months, i.e. till mid-July 2012.
Source: Republica
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