NRB takes over management of NCC Bank

Kathmandu, Jan 4

The Nepal Rastra Bank (NRB) has taken over the management of  Nepal Credit and Commerce Bank(NCCB). The central bank on Tuesday dissolved the NCC board and handed it over to a three-member management team led by Director Laxmi Prapanna Niraula after expiry of the deadline given by NRB to resolve the dispute among the NCC board members.

The management team, including Deputy Director Ramesh Acharya and Assistant Director Resham Raj Regmi, has been authorized to even exercise the rights of the board of directors. The dispute had been rising due

BFIs asked to identify remittance senders

KATHMANDU, DEC 11 - 2013

Nepali beneficiaries of remittance may not get funds sent by their kins from abroad through banks and financial institutions (BFIs) without the sender being properly recognized.

In the latest revised circular, Nepal Rastra Bank (NRB) has directed BFIs that they must get information about the sender and verify their identity. The BFIs have to get information about the name of the sender and his/her account number or any symbol number that identifies electronic transactions if the sender does not have a bank account.

The BFIs will have to obtain the address of the sender, and if proper address is not identified, they should verify the birth date, birth place, citizenship number or national identity number of customer identification number, states the revised directive.

Strict code of conduct for NRB supervisors

KATHMANDU, NOV 28 - 2013

Nepal Rastra Bank (NRB) has put in place stringent code of conduct for its employees assigned to supervise banks and financial institutions (BFIs).

In the “NRB Monitoring and Supervision Bylaw 2070”, the central bank has barred the supervisors from purchasing shares of BFIs from the secondary market, participating in feasts other than public events, and using their vehicles, taking loans at concessional rates, and accept presents.

The bylaw states if a supervisor or his/her family members have promoters’ shares or more than 1 percent share in a BFI, or if the supervisor’s family members hold the post of director, chief executive officer, senior official or business partner, the supervisor has to inform in written to the department chief.

NRB gives one more year to BFIs to raise paid-up capital

Kathmandu, Sep, 10, 2013

Reviewing a recent directive it had issued to banks to compulsorily increase their paid-up capital within the current fiscal year, the Nepal Rastra Bank (NRB) has now said that the capital can be increased by the end of the next fiscal year.

As per the fiscal policy, the central bank had directed the commercial banks on August 11 to raise their paid-up capital by the end of this fiscal year.

The policy change that the central bank announced issuing a notice to them a few days back has come as a relief to eight commercial banks as well as 40 development banks and 38 finance companies of the country.

Prior to the latest NRB decree, two out of the eight commercial banks were not in a position to distribute bonus shares from the net profit they had posted in the last fiscal year.

Nepal Credit and Commerce Bank (NCC) and Lumbini Bank would have been compelled to either issue right shares or go for a merger had the central bank not reviewed its directive. Similar was the predicament of the development banks and finance companies.

Now these BFIs can issue bonus shares from the profit they post in the current fiscal year as the central bank’s latest directive states that once it approves the proposed bonus shares, the BFIs can count them as their paid-up capital.

As the NRB policy, commercial banks must raise their paid-up capital to Rs 2 arba. The target set by the central bank is Rs 64 crore for the national level development banks, Rs 10 crore for the regional development banks, and Rs 20 crore for the finance companies.

Microfinance institutions flush with profits

KATHMANDU, JUNE 07, 2013

Microfinance institutions are raking in profits amidst the growing concern over the massive lending rate being charged on borrowers.

Microfinance development banks have earned 21 per cent more profit than a year ago. The class ‘D’ financial institutions earned Rs 33.26 billion as net profit in the third quarter of the current fiscal year.

In the third quarter of last fiscal year, they had earned profits worth Rs 27 billion.

Likewise, according to the seven microfinance development banks that are listed at Nepal Stock Exchange among the 28 in operation, these

class ‘D’ development banks have increased their profit by 27 per cent.

They earned Rs 244.2 million by mid-April, 2013, against Rs 191 million earned in the corresponding period a year back.

The ever growing profits of the microfinance institutions and generous dividend payouts have made them popular stocks to be traded at the stock exchange. From last fiscal year’s profit, their average dividend distribution stood at 25 per cent of the paid up capital.

However, of late, many feel that the concentration of microfinance institutions on profits is at the expense of the rural populace who are their borrowers.

The central bank licensed microfinance banks and institutions charge lending rates as high as 20 per cent to 25 per cent from borrowers which is almost 10 percentage points higher than the rate charged by commercial banks for deprived sector loans that are similar to micro credit.

Meanwhile, Nepal Rastra Bank (NRB) is gearing up to monitor the interest rates being charged by microfinance institutions. “We have also realised that the current rate of interest being charged for micro loans by microfinance banks are not sustainable, both for the borrower and the banks in the long run,” said spokesperson of NRB Bhaskar Mani Gyanwali.

“However, it is against the principle of the central bank to directly regulate the interest of any financial institution, but we will keep a close watch on the institutions,” Gyanwali said, adding that intervention will be undertaken if the microfinance institutions are unnecessary burdening clients for profit.

Moreover, financial institutions that are obliged to fulfil deprived sector lending requirement by the central bank opt to lend the amount to wholesale microfinance lenders at interest rates of between seven per cent to 10 per cent. The wholesale lenders then lend to individual micro credit institutions who then give the money to clients that consist mainly of poor people who reside in rural areas.

However, microfinance bankers are of the view that the interest rates being charged is in accordance with the cost of microfinancing. “The cost of going to the field, organising groups, providing focus groups with skill based training and then lending them money without any collateral is not something commercial banks are up to,” said a chairman of a microcredit bank.

“Microfinance is a business albeit a social one, and investors also expect returns, so it is not wrong if we make good money. Ultimately, if we are able to earn better then we will be able to provide better services to beneficiaries,” added the microfinance banker.

Despite the obvious benefits of microcredit in supporting the poor and ultra poor population and in creating social awareness, the growing concentration in limited areas and multiple lending to the same client has raised an alarm within the microfinance community as well.

Source: THT

Liquidity tightness in Banking System

KATHMANDU, MAY 10 - 2013

Amid tightening liquidity situation in the banking system, institutional depositors are making it hard for banks and financial institutions (BFIs) to get deposits at cheaper rates.

While BFIs themselves are offering higher interest rates—over 10 percent—to attract institutional depositors, the latter are demanding even more. They said the demand for funds from BFIs has increased massively in recent days.

One of the biggest institutional depositors, Employees Provident Fund (EPF), has been taking a stance that it will deposit its money only in banks that agree to offer 11 percent interest. “Our position is it (the interest rate) has to be 11 percent,” said EPF Administrator Krishna Prasad Acharya. “We accepted six percent interest rate when there was high liquidity in the banking system.”

According to Acharya, banks are offering up to 10.75 percent interest. The EPF has deposited more than Rs 25 billion in commercial banks. As newer banks are largely dependent on institutional deposits, they become ready to pay whatever demanded by institutional depositors.

As per the latest Nepal Rastra Bank (NRB) statistics, fixed deposits account for 41.3 percent of BFIs’ total deposits, and a major proportion of the fixed deposits come from institutional depositors. As of mid-March, total fixed deposits in BFIs stood at Rs 377.86 billion.

Besides EPF, other institutional depositors are also negotiating for higher interest rates. Citizens Investment Trust (CIT) is not depositing its money in banks that offer less than 10.75 percent interest. “Banks are offering up to 10.75 percent interest, and we have taken a policy of charging the same rate to all banks that seek our deposits,” said CIT Exe-cutive Director Rishi Ram Gautam.

The CIT has deposited more than Rs 17 billion in BFIs and it deposits a maximum of Rs 200 million in a single bank at a time. However, it has also adopted a policy of depositing up to Rs 1 billion in a single commercial bank, according to Gautam.

Bankers said the government’s failure to spend development budget forced them to offer higher interest rates on deposits. As of mid-April, Rs 57 billion has been stuck at the government’s treasury, which has not come into the banking system.

“The government should either spend the budget or the central bank should reduce the statutory liquidity ratio, cash reserve ratio or credit-to-deposit ratio to ease the current liquidity crunch,” said Commerz and Trust Bank CEO Anal Raj Bhattarai.

Commerz and Trust has also increased its interest rate on fixed deposit to 9.5 percent from 8 percent, while that on saving deposits has been increased to 8 percent from 6 percent. “If the situation does not improve within a month, we will be forced to increase the interest rate on lending too,” Bhattarai said. “We are waiting for the government to expedite spending which will ease the liquidity situation.”

On Thursday, the inter-bank lending rate was at 5.5 percent. Credit-to-deposit ratio of a few banks has crossed 80 percent, with credit increasing by 16.5 percent compared to deposit growth of 6.5 percent.

Excess cash reserve of commercial banks at the central bank has remained at Rs 8.8 billion, according to an NRB official, which used to be around Rs 50 billion when banks were flooded with liquidity.

“Net liquid asset has come down to 30 percent in recent days from 34 percent a few months ago, which is a clear sign of the tightness in liquidity,” said the central bank official.

Net liquid assets includes assets such as cash (and equivalents), stocks, bonds and bank deposits after deducting liabilities.

Source: The Kathmandu Post

NRB: NHCL to settle all cheques from mid-December

KATHMANDU, NOV 25 - 2012

Nepal Rastra Bank (NRB) has announced it would stop clearing and settlement of cheques from banks and financial institutions (BFIs) begining mid-December and that all BFIs have to switch to Nepal Clearing House Limited (NHCL) for electronic clearing of their cheques.

The NHCL has been carrying out electronic cheque clearing of its memers, while the central bank has been clearing and settling the cheques of those who have not yet become member of the NHCL. While all the commercial banks have taken membership of the NHCL, only 19 development banks and 18 finance companies have been clearing and settling their cheques through the NHCL.

NRB spokesperson Bhasker Mani Gnawali said that the NRB about two months ago had issued a circular, asking all BFIs to become NHCL member by December 16 for clearing and settlement of cheques.

Under the manual settlement, financial institution (presenting bank) collects the cheque of other institutions (paying bank) and take them to the NRB for settlement, which takes up to two days. On the contrary, for electronic settlement the presenting bank scans cheques and send them to the NHCL, which forwards them to the paying bank. The paying bank, after verifying the signature and other details, sends them back to the NHCL, which then forward them to the NRB for the final settlement. According to the NHCL, the entire process is completed in real time.

Neelesh Man Singh Pradhan, CEO of the NHCL, claimed the number of financial institutions (FIs) approaching it was increasing by the day and that the remaining FIs would become its members.

In a bid to accommodate a large number of BFIs in their system, the NHCL recently upgraded its system and software and the upgraded infrastructure has been in use for the past one week. “Currently, we are clearing and settling 8,108 cheques on average daily,” said Pradhan. “With the upgradtion we can provide facility to all the players of Nepali financial sectors.”

The NHCL was established about four years ago in the joint ownership of 23 commercial banks, two development banks, Nepal Rastra Bank (NRB) and Smart Choice Technologies (SCT) in order to switch the manual clearing into electronic system. However, it came into operation only a year ago as its operation was halted by the Commission for Investigation of Abuse of Authority (CIAA) to investigate over alleged misappropriation during the software procurement.

Some bankers had expressed strong reservation over the high cost at which the software was purchased as the cost associated is ultimately transferred to the member BFIs.

Source: The Kathmandu Post

NRB nod for merger of Grameen banks

KATHMANDU, NOV 11 - 2012

A board meeting of the Nepal Rastra Bank (NRB) on Saturday decided to issue the letter of intent (LoI) for the merger of five Grameen Bikas Banks. These regional rural banks had decided to merge in order to address operational ineffectiveness felt while operating separately.

Of the five banks—Purbanchal, Sudur Pashchimancal, Pashchimanchal, Madhya Pashchiman-chal and Madhyamanchal Grameen Bikas banks—only Paschimanchal is making profits. According to NRB, these banks have a combined negative net worth of Rs 130 million despite good performance of Paschimanchal.

After receiving the LoI, the banks have to conduct separate due diligence audit studies and complete the merger within the next six months. They had signed a memorandum of understanding on October 11 for the merger. Following the merger, the merged entity’s paid-up capital will be Rs 380 million. The central bank is planning to finance and conduct their DDA itself so as to ensure fair valuation of shares.

However, the central bank, which has shares in Sudur Pashimanchal and Paschimanchal banks, said the banks plan to maintain the paid up-capital of the merged entity at Rs 500 million. NRB officials say shareholders may have to put in some money to increase the capital.  NRB has also asked the Finance Ministry to arrange Rs 500 million to increase the paid-up capital of merged bank. “As we are not sure about the actual capital status of these banks, we have sought budget allocation of Rs 500 million from the government,’ said a senior NRB official.

Other shareholders of the Grameen banks include the government (in four of the five banks) and commercial banks including Standard Chartered, Nabil, Himalayan, Bank of Kathmandu, Nepal Bangladesh Bank and Agriculture Development Bank. All of them will retain their stakes in the merged entity.

Following the footsteps of the exemplary Grameen Bank of Bangladesh, the five banks were established during the period of 1992-1996 to provide micro credit facility to micro-industries, agro business es and trading, among others, in rural areas.

Source: The Kathmandu Post

NRB gives nod to NBB share selling

KATHMANDU, NOV 09 - 2012

The Nepal Rastra Bank ( NRB ) on Thursday gave approval in principle to the sales of the Nepali promoters’ shares in the Nepal Bangladesh Bank (NBB) to Bangladeshi promoter International Finance Investment and Commerce (IFIC) Bank.

The Bangladeshi promoter, which currently has 10 percent stake in the bank, aims to take over all 26 percent of Nepali promoters’ shares and 15 percent share of Bank Asia, another Bangladeshi partner, to hold majority stake in the bank.

The central bank board meeting on Thursday gave a go ahead to such sales after Finance Ministry’s opinion that sales of Nepali prompters’ shares to Bangladeshi prompter would not be an insider trading, which is banned as per the Bank and Financial Institution Act (BAFIA) a month ago.

“Along with the approval in principle, we have also put certain condition such as ensuring recovery of loans that went to the promoter group while selling the promoters’ shares,” said a board member of the central bank.

Given the bank has to recover loans worth around Rs 1.4 billion from people who are related to its key promoter, NB Group, the central bank had told the NBB to open separate account at the central bank to deposit amount received after selling the shares. “The amount will first be used to recover the promoter related loans,” said the NRB board member. The IFIC will have to take approval also from Bangladeshi central bank to take over shares from Nepali promoters.

Although the NRB had received the proposal on allowing the sale of Nepali promoters’ shares to Bangladeshi shareholders much earlier, the board could not take a decision due to strong opposition from some of its members “having close connection with the NBB promoters.”

The Act bars directors, chief executives, auditors or secretaries of banks and financial institutions (BFIs), or those directly involved in the BFIs from selling/purchasing shares of the companies (or subsidiaries) under their own name or their family members and their companies until one year from the time they left those companies.

However, the Finance Ministry argued that the transaction would not be an insider trading given both seller and buyer of the promoter’s shares would be well aware about the financial status of the bank.

After the central bank decision, the NBB CEO Gyanendra Dhungana said that the share selling process to IFIC would accelerate. “First of all, we will carry out due diligence audit (DDA)) of the bank to determine exact value of the bank’s shares and sales of shares will begin,” said Dhungana, hinting that the process could take around one and half months.

 

 

Source: The Kathmandu Post

NRB for returning applicants money after Lotus IPO flops

KATHMANDU, NOV 09 - 2012

Nepal Rastra Bank ( NRB ) has said that the money paid by subscribers for shares of Lotus Finance during its initial public offering (IPO) should be returned. After the IPO was undersubscribed and underwriter Civil Capital Market refused to mop up the remaining shares, the Securities Board of Nepal (Sebon) had sought the central bank’s opinion for a way out of the predicament.

Lotus Finance had made an IPO worth Rs 80 million in June 2012, but only Rs 11 million worth of shares were subscribed. Civil Capital Market, which had underwritten 50 percent of the IPO amount, refused to buy the remaining shares, blaming the promoters, directors and employees of Lotus for not picking up the slack.

The central bank has described the reluctance of the promoters and directors of Lotus to buy the unsubscribed shares as lack of confidence in their own company, and advised Sebon that the money deposited by investors should be given back.

“Ordinary shareholders had to suffer losses when we allowed Nepal Development Bank (since then liquidated) to issue rights shares when its promoters and directors didn’t buy the shares themselves,” said a senior NRB official. “The blame for the Nepal Development Bank fiasco fell on us, and we don’t want that happening again; so we have suggested returning the money to the ordinary subscribers.”

The central bank’s suggestion matches what Civil Capital had been hoping Sebon would say. Earlier, the issue manager and underwriter had sought Sebon’s approval to return the money to the subscribers. “We were ready to buy half of the shares issued as per our commitment if the promoters and directors picked up the rest of the unsubscribed shares,” said Bhisma Raj Chalise, CEO of Civil Capital. “As the promoters, directors and employees of Lotus didn’t have faith in their own company; nobody will be ready to put money in it.”

The Securities Registration and Issue Regulation states that underwriters shall have the responsibility inclusive of their obligation to buy the unsold portion of the shares issued and make payment for them.

The underwriter had sought Sebon’s approval to return the money as per the provision of the Securities Issue Guideline which states that the subscribers’ money should be returned along with interest by the issuer and the issue manger if the shares are not allotted within a certain period as fixed by this bylaw.

According to Civil Capital, only 738 applicants turned up to buy shares at the IPO of Lotus. This means the shares should have been allotted within 40 days. However, it has been four months and the applicants have not been allotted shares.  Investors these days don’t think the share market is such a great place to invest due to meagre returns. Meanwhile, public trust in financial institutions has plunged in the last three years following revelations that quite a few of them had engaged in unscrupulous activities.

Source: The Kathmandu Post

Bankers want no base rate on old loans

KATHMANDU, OCT 15, 2012

Bankers have demanded old loans be exempted from the base interest rate that the central plans to introduce soon. The Nepal Bankers’ Association ( NBA ) made the demands in its official suggestion submitted to the central bank on Sunday.

Base rate is the minimum interest rate that banks should charge on lending. Once introduced, the banks are not allowed to extend loan to borrowers below the base rate.

Lending below that rate would be infeasible for the banks as it is fixed based on minimum cost of fund.

Bankers argue that some projects, to which they have lent, are carrying low risk and it would be unfair to hike the interest rate on their loans . “The central bank must seriously consider this demand,” said an NBA executive member. Some bankers, however, dismissed the demand as illogical saying that the NBA had sent the suggestion under the pressure from a couple of commercial banks.  The Nepal Ratra Bank (NRB) is yet to decide on whether to allow banks to continue with the older rate for the older loan.

“We have just received their suggestion, and will decide upon it in our next board meeting,” said a senior NRB official. “It is more likely that we will allow some time for banks to revise their interest rate in line with the base rate on loans that were disbursed earlier.”

The NBA have also suggested the central bank to allow banks to calculate cost of fund on quarterly basis rather than the annual basis as asked by the NRB.

“If fund is calculated on annual basis, the base rate of some of the commercial banks might reach as high as 16 percent,” said the NBA executive member. In another suggestion, the NBA has asked the central bank to be clear on application of base rate on consortium loans . “We have asked that in case of consortium loan, the effective base rate should be an average of the base rates of all the consortium banks,” said a banker.

Similarly, the commercial banks have asked the central bank to allow them to charge interest rate below the base rate for loans disbursed against the special collateral such as cash and government bonds, fixed deposit and foreign bank guarantee.

“Such collateral makes the loan less risky. As they are highly liquid, a bank can recover the loan amount easily even if it is defaulted,” said the banker.

Meanwhile, another NRB official said that they were working on war footing to introduce the base rate before Dashain. The central bank, through its monetary policy, had formally made the announcement to introduce base rate for the commercial banks to make lending pricing more transparent.

However, the regulator formally invited bankers to discuss on the issue only after mid-September. During the meeting, the NRB gave the bankers tentative idea and different variables to be considered while calculating the base rate.

According to the NRB, bankers have been asked to consider pure cost of fund, cash reserve ratio, statutory liquidity ratio, operating cost and minimum predetermined return on investment before calculating the base rate.

Banks are required to maintain six percent of CCR, which means the amount stays idle in the NRB vault. They also have to maintain 15 percent SLR by investing in government treasury bills and bonds, and maintain cash reserve in their own vault.

Source: The Kathmandu Post

Dollar 5 month low against Rupee.

KATHMANDU, Oct 3, 2012

Nepali rupee has reclaimed Rs 7.74 against a US dollar, enjoying gain of well over 8 percent over the last three-and-a-half month, as India´s commitment to stick to fiscal reforms and improvement on global risk sentiment helped it rally against the greenback.

Such assessment was made after Nepal Rastra Bank (NRB) on Tuesday announced that rupee will value at 84.14 against a USD when trading opens on Wednesday. The exchange rate of USD had hit a record high of Rs 91.88 on June 23, 2012.

Though currency trading in India remained closed on Tuesday due to public holiday, officials of Foreign Exchange Dealers Association of Nepal (FEDAN) said the exchange rate of USD for Wednesday was lowered taking Monday´s closing rates in India into consideration.
“When we set the rate for Monday, the market in India was still open. Hence, it had not reflected the closing figures,” said an official of FEDAN. “Now, Wednesday´s rate will reflect the final rates.”

With the gain announced for Wednesday, rupee has hit almost five-and-a-half month high against the USD. Rupee was valued Rs 83.59 per USD on April 24, 2012.

The gain by rupee, which can be attributed to its peg with the Indian Currency (IC), has brought cheers to the importers as it lowers their import costs. As this benefit is expected to be eventually transferred in the market, consumers that so long braved the brunt of sharp devaluation of rupee too can afford to heave some sigh of relief.

It has also brought some respite to the government for it can now service the foreign debt by spending relatively lesser rupee.
However, the gain of rupee will badly impact remittance receivers as it will drag down their actual receipts prior to the Dashain festival. This clearly means, families of some 2 million Nepali workers, who send back additional money to enable their dear ones enjoy the festival in a grand way, will be hurt, said an NRB official.

Source: Republica

Banks allowed to invest overseas

KATHMANDU, SEP 13, 2012

The central bank has opened up investment by class ‘A’ and ‘B’ financial institutions in foreign countries.

In line with the monetary policy, Nepal Rastra Bank (NRB), issuing a circular today, has allowed commercial banks and national level development banks to invest 30 per cent of foreign currency deposits at their agency banks abroad in low risk instruments for a maximum of two years.

The circular states that banks can only deposit 25 per cent of their total foreign exchange liabilities in agency banks abroad. Moreover, banks have to maintain a minimum foreign exchange balance of $200,000 to meet payment necessities. While introducing the monetary policy, NRB had announced that banks with foreign currency in their agency banks abroad would be allowed to invest a part of their balance in minimum risk instruments, signalling a policy to open up the country’s capital account. “Banks can invest up to 30 per cent of their total balance in their agency banks in minimum risk instruments such as foreign government issued bonds, call deposits and certificate of deposit,” said spokesperson for NRB Bhaskar Mani Gyanwali.

Banks will be able to make some money by investing instead of keeping their balance idle in foreign banks, he added. However, banks cannot obtain loans from foreign banks for investment purposes.

Moreover, NRB has also allowed banks to hedge the risk related with foreign exchange rate fluctuation through derivatives instruments provided banks keep enough foreign currency to cover their forwards exchange contract in their agency banks as deposits.

The banks are allowed to invest in derivatives such as forward, futures, options and swaps.

Source: THT

NRB bars Adhikari, Laxmi Bahadur Shrestha from sitting on bank board

KATHMANDU, SEP 11, 2012

Nepal Rastra Bank (NRB) has barred a current and a former board member of Nepal Bangladesh Bank (NBB) from sitting on the board of any bank or financial institution for the next three years for committing acts detrimental to it.

Bishnu Raj Adhikari and ex-board member Laxmi Bahadur Shrestha, who recently resigned from the bank after the central bank moved against him, have been found guilty of causing loss to the bank while auctioning its non-banking assets (NBA).

The central bank has also fined them Rs 500,000 each and ordered them to pay, within 35 days, compensation equivalent to the loss incurred by the bank. Following NRB’s decision, Adhikari has lost his position in the bank. The NRB Act 2002 allows the central bank to impose a fine up to the amount of the loss and order the bank’s board to remove the director involved in harming it.

According to the central bank, Adhikari and Shrestha caused loss to the bank when auctioning land put up as collateral at Sanepa, Lalitpur where Padma Cinema Hall stands. An NRB official said that they decided to return the guarantee amount deposited by the sole bidder for the land, Rabindra Bahadur Singh, who refused to buy the land after winning the bid. Singh, former chairman of United Development Bank, is presently in jail for banking offences committed while he was its head.

According to NRB, the guarantee amount should have been confiscated as per the existing law. Singh had offered Rs 46.7 million for the land. He had deposited a guarantee amount of Rs 4.67 million, which is 10 percent of the quoted amount, to participate in the bid. However, the bank’s credit sub-committee represented by Adhikari and Shrestha decided to the return the security deposit causing loss to the bank, NRB officials said.

However, NBB chief executive officer Gyanendra Dhungana said that the decision to return the deposit was taken after the winning bidder Singh could not take possession of the land as the default borrower refused to vacate it. “In fact, there has not been any loss to the bank,” he added.

Dhungana said that NBB has already written to its former directors to pay the amount as directed by the central bank. “As the amount is not very large, we hope to recover it soon,” he said.

Last week, NBB issued another auction notice for the land. “There were three-four bidders who didn’t offer more than Rs 33 million,” said Dhungana. “We will not sell it for less than the price offered previously.” Meanwhile, the central bank has also issued written warnings to ex-chairman Pushpa Raj Rajkarnikar, who resigned with Shrestha recently, and public director Indra Bahadur Thapa for their involvement.

Source: The Kathmandu Post

Credit to agriculture sector surges 60pc

Credit to agriculture sector surges 60pc

KATHMANDU, JUL 29 - 2012

After seeing virtually no growth in agriculture lending in previous five years, commercial banks’ credit to agriculture sector swelled in the last fiscal year 2011-12, a central bank data shows.

According to the Nepal Rastra Bank (NRB), commercial banks’ lending to the sector increased by 60 percent to Rs 22.70 billion over the first 11 months of the last fiscal year against the same period previous year. The size of the loan in the sector rose by Rs 10.66 billion during the period.

The central bank said that the positive outcome is being seen of the government’s policy to encourage banks and financial institutions (BFIs) to increase lending in the sector like agriculture and energy. The central bank have made the mandatory provision that the BFIs must lend 10 percent of the total lending to agriculture and energy sectors since last fiscal year.

NRB Deputy Governor Maha Prasad Adhikari claimed that it was the indication that the central bank’s policy started to deliver the result. “Increasing trend of commercial farming in the recent years, setback in real estate and shares, and tendency of people to take loans from BFIs are other reasons behind increased lending in the agriculture sector this year,” he said.

According NRB data, there was a growth of 122.5 percent in lending in forestry, fishery, farming and slaughter, while animal farming and services witnessed a growth of 17.1 percent in the first 11 months last year. Even the lending in agriculture related machineries which is not categorised as agriculture sector loan, also witnessed a staggering growth of 284 percent in the review period last fiscal year.

Bankers also admit that central bank’s policy encouraged investment in agriculture. “Although I am suspicious the data about the growth of lending it is really positive indicator,” said Sashin Joshi, chief executive officer of NIC Bank.

He said that there has been emergence of new types of commercial faming over the last 2-3 years, which also triggered increased demands for loans in the sector.

Rastriya Banijya Bank is now planning to a substantial increase agriculture loan this fiscal year after seeing rise in loan demands from the sector.

According to Krishna Prasad Sharma, CEO of the country’s largest bank, increased trend of commercial farming in both plants and livestock in the recent days triggered loan demands from the sector.

“That’s why, we have planned to increase lending in the sector by Rs 2 billion this year,” he said, adding that the bank would also invest in agriculture production and marketing.

Source: The Kathmandu Post

TR loan provision: Central bank new directive causes industrial jitters

KATHMANDU, JUL 29 - 2012

The central bank’s new provision regarding trust receipt (TR) loan has landed industries in trouble. According to a recent directive by the Nepal Rastra Bank (NRB), banks and financial institutions (BFIs) are not allowed to extend other types of loans to businesses to clear TR loan. If other types of loans are issued to clear TR loan, it should be categorised as non-performing loan (NPL), as per the new provision.

Industries generally take TR loan while importing raw materials with pay back period of 90 days. They take short-term loans whenever they fail to clear the TR loan within 90 days.

Industrialists argue that given the country’s very poor industrial condition, it is almost impossible to convert raw material into finished goods within 90 days and clear the TR loan. “It is impossible to run factories by taking TR loans for 90 days. Businesses were paying such loans within two to four months with the help of short-term loans,” said an industrialist.

Pradeep Jung Pandey, vice-president of Federation of Nepalese Chamber of Commerce and Industries said that NRB’s new provision has come at the wrong time. “Productive sector is already going through a lot of problems,” said Pandey. “This provision instead of supporting productivity will have an adverse effect on industries.” He expressed fear that the provision, which came at the time of political instability, labor problem and power crisis, will take a heavy toll on industrialists. “In other countries, government provides facilities to productive sectors. In our case, they are affected from all sides,” Pandey added.

According to an official from the Nepal Bankers’ Association (NBA), the change made in TR loan will definitely leave many industries in problem. “None of the factories can process the raw material into finished goods and sell them in the market in 90 days,” said the official. “At a time when the industrial environment is poor, this provision will further mar the industries.”

The NRB, however, has said that it has asked bankers to suggest the central bank if the provision has created problems. “We have asked them to write us about the problem,” said Bhaskar Mani Gnawali, spokesperson at the NRB. “The latest change was made to address the misuse of TR loan.” According to NRB statistics, BFIs has extended around Rs 36.09 billion to various industries under TR and import loan by mid-May. Out of that, commercial banks have disbursed Rs 36.01 billion, with rest of the lendings extended from the development banks.

Another NRB official said that the directive was issued to discourage the tendency of increasing the deadline of TR loan payment. “Most of the BFIs are run by the industrialists and they are complaining it as they are affected,” said the source. “It might take time to process the raw material into finish goods but it should not affect them in repaying term loan.” Some of the bankers have also welcomed NRB’s new move. NIC Bank CEO Sashin Joshi welcomed the NRB’s directive, saying that industries have other options and thus they will not be jeopardised by the new provision in TR loan.

Source: The Kathmandu Post

Bank bosses allowed to take business loans, says NRB

KATHMANDU, JUL 20, 2012

Nepal Rastra Bank (NRB) has back tracked from a directive issued to banks and financial institutions (BFIs) barring their top level personnel from taking bank loans.

Following angry reactions from directors of BFIs, the central bank has clarified that it has forbidden them from taking personal loans only, and that they are free to take business loans. NRB had recently issued a unified directive stating that board directors, chief executives and managerial level officers of BFI’s were prohibited from taking other loans except education, hire purchase and home loans and loans for household purposes.

Given that most of the promoters of BFIs are businessmen, they would have had to either leave their BFIs or not borrow money for their businesses if they wanted to remain in their posts.

“What we meant by that provision is that bank directors should not take personal loans from any other BFI,” said NRB spokesperson Bhaskarmani Gnawali. He added that family members of the directors were free to borrow money from other BFIs.

The central bank’s move has been directed at discouraging the tendency among bank bosses to borrow money from each other’s organisations on the basis of their power to lend and not the viability of their businesses. The practice of obtaining credit from other banks has become rampant in the financial sector as those in top management positions and promoters are not allowed to get loans from their own banks.

The directive was a hot topic of discussion among senior officials of NRB at a meeting held to discuss the upcoming monetary policy on Thursday.  “The discussion concluded that bank directors should not be barred from taking business loans from other banks as most of the promoters are businessmen,” said a central bank official. “The upcoming monetary policy will clearly mention that while preventing them from taking personal loans.”

Panicked by the new provision, officials of the Nepal Bankers’ Forum, an association of bank promoters, met with NRB officials on Wednesday to protest against the central bank’s decision. They were enraged at NRB for bringing a new policy without consulting them. “If NRB acts to bring reforms in the system, it is okay, but it should consult with the stakeholders and give time for adjustment,” said Pradeep Jung Pandey, chairman of Citizens Bank International.

He added that NRB allowing bank bosses to take business loans and preventing them from taking personal loans was a welcome step. “But it should give time for bankers to adjust to the new situation,” he said.

NRB plans to bar staff from taking loans

Nepal Rastra Bank plans to bar its employees from taking loans except education, hire purchase and home loans and loans for household purposes. A meeting of senior NRB officials on Thursday concluded that such a measure was needed to ensure loyalty and hard work of the central bank staff. “Such a measure will be taken by issuing a new code of conduct for NRB staff,” said the central bank official.

Source: The Kathmandu Post

NRB introduces new loan payment provision

KATHMANDU, JUNE 4, 2012

The central bank has forbidden financial institutions from levying any extra charge on advance repayment of loans.

Issuing a circular today, Nepal Rastra Bank (NRB) has directed financial institutions to allow repayment of loans at the existing rate of interest in case the borrower wants to repay the outstanding dues following an interest hike.

“This provision will provide the borrower a chance to discontinue borrowing and repay the loan instead of paying a higher interest rate,” said spokesperson of NRB Bhaskar Mani Gyanwali. The borrower does not have to pay anything more than the outstanding dues and principal amount based on the earlier agreed upon interest rate.

Likewise, in its latest attempt to encourage agro lending, NRB has decided to calculate lending of up to Rs 10 million to non-credit and saving cooperatives as deprived sector lending. Loans of up to Rs 10 million floated to cooperatives who in turn lend to a group involved in agriculture, cattle rearing or poultry farming with a limit of up to Rs 90,000 per person will be eligible to be considered under this provision.

“We hope this will help encourage financial institutions to float loans to agro and farming through such co-operatives,” added Gyanwali. However, if such loans are found to be used for other purposes then the financial institution has to provision 150 per cent of the lent amount for possible loan loss, said the circular.

In order to promote small microfinance institutions and thus direct lendings to the deprived sector and ease the pain of looking for borrowers in remote areas by financial institutions, the central bank had also allowed the purchase of ordinary shares of microfinance institutions as deprived sector lending.

Deprived sector lending refers to small loans that are lent to the poor and rural people for small projects with a minimal collateral in order to promote formal banking in the rural areas.

According to the monetary policy, commercial banks have to lend 3.5 per cent of their total loans to the deprived sector while development banks and finance companies must lend 3 per cent and 2.5 per cent of their total loans respectively to the deprived sector, according to the monetary policy.

Likewise, NRB has directed financial institutions to consider those loans floated for only one year as term loans and even those loans floated by microfinance institutions that are meant to be paid within one year through installments are also be taken as term loans.

Source: THT

Central bank mulls cap on personal loans, overdrafts

KATHMANDU, MAR 23 - 2012
Nepal Rastra Bank (NRB) has been mulling limiting credit under the personal loan and overdraft headings to Rs 10 million after finding that borrowers had been misusing a majority of such loans.

The central bank has recently sought the opinion of bankers in this regard. “Till now, we have no details on which sectors are receiving such credit and how it is being used,” said an official from NRB. “This will increase the credit risk tremendously.”

NRB officials claim they have found the credit issued under this heading being used for “window dressing”. Window dressing is a set of actions or manipulation where borrowers are provided additional funds to pay interest on their loans so that they don’t become substandard or non-performing. This action increases the profit of the banks and their balance sheet looks good in the short run but increases the risk in the long run.

Bankers agree that credit issued under such headings is being misused but are against putting a cap on it as suggested by NRB. They say that the central bank should monitor the lending done under such headings but should not impose a cap on it. “Most small and medium enterprises (SMEs) finance their business through credit issued under personal loans as their book-keeping and accounting do not have high standards,” said a banker. “Once the amount of personal loan is capped, they will find it difficult to finance their business.”

The central bank official, however, said that they would not impose a limit immediately. “Currently, we have only shown our concern, and are seeking the opinion of bankers so that we will be aware of the implications of the policy,” said the official. “We will issue a directive after winning the confidence of bankers.”      

Likewise, the central bank also plans to regulate banks and financial institutions (BFIs) during the procurement of fixed assets like land and buildings. NRB has asked bankers for their opinion about not allowing them to purchase fixed assets with a value exceeding their paid-up capital.

“The paid-up capital is capital owned by the shareholders and the rest of the money belongs to the depositors,” said an NRB official. “BFIs do not have a right to invest their money on land and buildings.” Bankers have agreed to this and said that NRB should bring directives to regulate it.

Source: Kantipur

Branchless Banking Service : Central bank against service fees on deposit collection

KATHMANDU, MAR 19 -

The Nepal Rastra Bank (NRB) will not allow banks to charge customers service fees on deposits collected through point of transaction (POT) machines—a type of branchless banking service.

The central bank’s decision came after some banks sought its approval to charge customers on deposits and withdrawals carried out through POT machines. However, the NRB has said nothing about the charges on withdrawals.

Mega Bank, which stared this service three months ago, had sought NRB approval to charge the service users 5 percent on deposits and 10 percent on withdrawals, according to NRB sources. “We notified Mega that it cannot charge any fees on deposit collection,” said a senior NRB official. “The same will be applicable for all other banks.”

Central bank officials said it was unusual for banks to charge fees on deposits as their earnings come from resources made available by depositors.

In its recent directive, the NRB has also barred banks and financial institutions (BFIs) from charging customers any king of service fees on deposits following complaints from depositors that banks were charging fees in the name of account maintenance. “The same principle applies to deposits collection under branchless banking service,” said the official.

Mega is running a pilot branchless banking service in Chautara, Sindhupalchwok, and plans to expand the service in other areas.

Mega Bank CEO Anil Shah said they would accept the NRB decision, adding they were, however, committed to their expansion plan. “As this service increases inclusion in the financial sector, we hope that the government will help us,” said Shah.

The central bank has allowed Mega and Siddhartha Bank, which had also sought a similar approval from the NRB, to expand the service to 15 places across the country.

With the urban market reaching saturation levels and untapped resources available in rural areas due to increased remittance, banks are seeking to expand their reach into rural areas.

Banking services are more concentrated in urban areas, with banks collecting 95.3 percent of their deposits from cities and towns, and disbursing 97.1 percent of their loans to these places, according a recent NRB report.

With remittance flowing into rural areas on a large scale and branchless banking not requiring setting up of bank branch, more banks are planning to start this service.

Citizens Bank International is one of them. The bank has applied to the central bank to launch the service. “We want to prove that there are abundant resources in villages,” said Citizens CEO Rajan Singh Bhandari.

Bhandari said they too plan to charge a certain fee on the service. The fee would be less that the amount people have to spend to travel to a bank branch, he said.

Everest Bank, the pioneer in branchless banking in Nepal, has been providing the service in 28 places across the country. It charges Rs 100 for the smart card required for carrying out transactions through POT machines, but not on deposits and withdrawals.

“There is no profit in this business, but we started to increase banking habit among rural people,” said Humnath Gurung, deputy general manager of Everest. “Instead, we have been paying a certain charge to software developer and our agents assigned for carrying out deposits and withdrawals through POT machines.”

Source: Kantipur