Nepal Bank Limited has published notice to its loan defaulters for deducting loan interest.

Kathmandu, March 23

Nepal Bank Limited has published a notice to its loan defaulters who has still to pay interest and loan principle amount to get certain percentage discount on their charged interest rates for fixed amount of money taken as a loan.

Banks not able to mobilize higher loans even after election

Kathmandu, January 3:

Bank and financial institutions, especially the commercial banks, have not been able to mobilize loans significantly even after the November 19 Constituent Assembly election, which has made investors upbeat about political and economic climate of the country.

Though the bankers claim that they have been mobilizing more loan after the election, hard facts does not corroborate this: Post-election, all the 31 commercial banks

NRB tightens screws on BFIs over capital

KATHMANDU, AUG 12 - 2013

Banks and financial institutions (BFIs) have to fulfill the paid-up capital requirement through accumulation of the fund paid by the shareholders within a year.

While extending the deadline for fulfilling the paid-up capital requirement by one year after it expired at the end last fiscal year, the central bank on Sunday issued a new circular announcing the scrapping of the existing provision of the fulfilling the paid-up capital through reserves. The unified directive 2013 has made the provision that the BFIs could increase their paid-up capital requirement with 80 percent paid-up and 20 percent reserves.

With the new provision, the BFIs failing to meet cent percent paid-up capital should either issue rights shares or bonus shares or go for merger.

As of the last fiscal year, eight commercial bank s and several development bank s and finance companies have not fulfilled the paid-up capital in cent percent paid-up version.

Although the commercial bank s have been fulfilling the requirement through reserves, development bank s and finance companies are struggling to fulfill the requirement even through reserve. “The move was taken to encourage the BFIs to go for merger,” said a senior NRB official. “In the current circumstances, the BFIs will prefer merger instead of issuing rights and bonus shares.”

The official said that it would also affect the share market with investors willing to invest on the shares of particular commercial bank s with hope that they could issue rights or bonus shares.

Under the current licensing policy, the commercial bank s are required to maintain a paid-up capital of Rs 2 billion, while national-level development bank s have to maintain it at Rs 640 million. For the development bank s with the operational license in 4-10 districts will require Rs 200 million, and those authorised to operation in 1-3 districts need Rs 100 million.

As far as the finance companies are concerned, national-level finance companies have to maintain a paid-up capital of Rs 200 million, while such companies with license to operate in 1-3 districts should maintain a paid-capital at Rs 100 million. The central bank has asked BFIs to submit their capital plans within mid-October.

A former NRB official said that the central bank ’s move appeared to be guided by not allowing the BFIs to distribute cash dividends at a time a majority of bank s have been

announcing huge rise in profits.  “It is also the principle of Basel guidelines that the capital should be strengthened whenever the bank s log good profits,” he said.

Pari-passu agreement must for multiple bank ing

Banks and financial institutions (BFIs) will have to sign a pari-passu agreement before providing or renewing working capital loans such as overdraft, cash credit, demand loan, trust receipt loan and short-term loans exceeding Rs 10 million to the same borrower.

Pari-passu agreement ensures proportional rights on collateral put by the borrower among the financing BFIs based on the size of loans.

This is the first time that Nepal Rastra Bank (NRB) has made a provision on pari-passu amid demands from the BFIs to control increased multiple lending that has exposed them to more risks. While signing such agreement, concerned parties should disclose size of loans, details about collateral and shares of each lender on the collateral, states a new circular issued by the central bank . “Provided such loans are not recovered, concerned BFIs will have to recover the loans from collateral based on para-passu agreement,” it added. An NRB official said that the move was taken to ensure that the BFIs will be aware of risks associated with the loans while extending them to certain borrowers.

Until now, a BFI providing first loan to the borrower will have the first right on the collateral in the event of loan default, while other BFIs will have consecutive rights on the collateral.

The BFIs involved should determine the maximum limit of loans based on the stocks of goods and receivables (goods sold and payment remaining) of the borrower. The BFIs have to get details of stocks and receivables at least every three months from the loanee.

In case of  loans below Rs 10 million, the BFIs can lend upon receiving ‘No Objection Letter issued by previous lenders.

Source: The Kathmandu Post

As liquidity eases, investors may have a reason to cheer

Kathmandu, June 13, 2013

There are signs that the liquidity crunch in the market might be easing.

Shortfall in deposits compared to loans disbursed had been straining the capacity of the banks and financial institutions to supply money into the market. However, the relief comes after the institutions that were reeling under shortage of funds succeeded in attracting more deposits by suddenly increasing the rate of interest on deposits.    

The interest rates, though, are expected to fall within a month.

Until now, some banks and finance institutions were struggling to maintain even the minimum CD ratio fixed by Nepal Rastra Bank. Though most of them have now been able to maintain the CD ratio, they haven’t been able to disburse loans as per the existing demand.

Despite the signs of easing of liquidity, however, the flow of money is expected to increase only after the release of the new budget that would to be followed by the announcement of a new monetary policy.

Low government spending and minimal rate of interest had led to the liquidity crunch. According to Finance Ministry, Rs 50 arab has been lying unused in the state coffer, which contributed to the liquidity crunch in the market.    

Also share market investors expect NEPSE to perform better with the easing of liquidity in the market. But investors would be cautious until they know that the improved liquidity situation is here to stay for a while.

Govt to finalize ToR for soft loan from EIB

KATHMANDU, Feb 11, 2013

The government is holding negotiations with the European Investment Bank (EIB) next week to finalize terms and conditions for soft loan of US$ 70 million for the construction of 140 mega watts Tanahun Hydropower Project.

“A team from EIB is scheduled to visit Nepal next week to finalize the terms and conditions for the soft loan,” joint secretary at the Ministry of Finance (MoF) Madhu Marasini, who also heads the International Economic Cooperation Coordination Division (IECCD), told Republica.

The government has already arranged a total of US$ 300 million soft loan from Asian Development Bank (ADB) and Japan International Cooperation Agency (JICA) for development of the project. “We will seek an additional US$ 70 million from EIB in the meeting scheduled for next week," Marasini said.
The government has already finalized terms and conditions for the soft loan with ADB and JICA. “The terms and conditions with EIB will be different from that of ADB and JICA,” said an official at the Ministry of Energy (MoE).

ADB has agreed to provide soft loan at 1.5 percent interest with 30 years of maturity period. Similarly, JICA has agreed to provide soft loan at 0.01 percent interest with 40 years of maturity period.

“The meeting with EIB team next week will dwell on finalizing interest rate and maturity period,” the official said. The second reservoir type hydropower project after Kulekhani will be developed by Nepal Electricity Authority (NEA) after the government arranges fund for the project.

Meanwhile, the government is also vying for a loan of US$ 30 million from Abu Dhabi Fund for Development (ADFD) for the development of the project. “ADFD has expressed interest in funding the Tanahun Hydropower Project. But any meeting with DFD has not been fixed so far,” said the official.

ADB, which is a lead funding partner, had provided US$ 25 million in grant assistance to prepare the detailed report (DPR) of the project. “The project design has been completed,” said project Chief Mahesh Prasad Acharya.

If everything goes as planned, the national pride project based in Bayas municipality of the Tanahu will start generating power by 2020. According to officials engaged in the negotiation process, ADB and JICA both also have taken Tanahun Hydro as a “prestige project”

Source: Republica

Blacklisting floor set at Rs 1 million

KATHMANDU, NOV 26-2012

Borrowers defaulting on loans of as less as Rs one million will now be blacklisted by the Credit Information bureau (CIB).

Nepal Rastra Bank (NRB) issued a circular today saying that financial institutions should blacklist defaulted loans of Rs one million or more. According to the earlier regulation, the floor was fixed at Rs 2.5 million.

NRB’s move to reduce the blacklisting default amount will increase the number of people and firms listed in CIB’s blacklist. There are 2,691 borrowers that are in the CIB’s blacklist as of now. CIB blacklists borrowers within 15 days of a financial institution’s request.

Likewise, from now on, financial institutions need to provide CIB with details regarding all loans permitted by the financial institutions exceeding Rs one million in principle amount within 15 days. In addition, information about the loans that are not repaid within 90 days of the repayment deadline also needs to be provided to CIB within 15 days of the deadline. In this case too, earlier only loans amounting to Rs 2.5 million needed to be reported promptly to CIB.

Borrowers that have failed to pay the principle amount for more than one year of

the deadline, or were found to have misused the borrowed amount can be blacklisted by CIB. Likewise, borrowers not in contact or who are bankrupt will also get blacklisted.

Being blacklisted makes the borrower — any person or firm — ineligible for acquiring or rescheduling any new loan from any financial institution, not even credit card. Such blacklisted people cannot even become a guarantor for other loans. Moreover, such blacklisted people will also be ineligible to be a director of any publicly listed company.

Source: THT

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

The struggle continues for Gurkha Dev Bank

KATHMANDU, SEP 19 - 2012

It has been one and half years since Gurkha Development Bank (NRB) was declared crisis-ridden, but the bank is still struggling to recover bad loans.

The central bank recently dispatched a strongly-worded letter to Gurkha, asking why it failed to recover 20 big loans and what it could do to recover the amount, according to a senior Gurkha official.

Those 20 loans (Rs 1.13 billion), most of them related to the real estate sector, account for two-thirds of the bank’s total bad loans (Rs 1.5 billion).

According to the bank’s internal assessment, it requires at least Rs 1 billion to turn healthy. “The central bank, a few days ago, asked for a viable plan to recover the chronic bad debts,” said the Gurkha official.

Among the loans the central bank has pointed out are those lent to Swayambhuraj Bajracharya, Raenna Asset Developer, Santoshi Rai International, Sony and Salima Developers, Darsandhunga Roda Uydog, Mondhum Housing and Investment and SN Developers.

Other bad loans of the bank include those going to Indeep Developers Private Limited, Sukla Trade, Lumbini Infrastructure, BKHP Construction Company, Muna Housing, Morang Model Residence, Janamukti Housing and Abdhul Kawadi. “I have created environment for the recovery of around Rs 350 million,” said Gurkha’s director Amod Domzan, who was removed from the post of managing director by the bank’s board on Monday. “Loanees including Muna Housing, Morang Model Residence, Janamukti Housing are in our contact and have committed to repay loans.”

Even Pancha Lal Maharjan, whose land was put up collateral to sanction loans to Abdul Kawadi, is also trying to claim back his land by repaying the loan amount, according to Domzan.

“If those 20 big loans—most of them connected with promoters—are recovered, the bank will be in a healthy condition,” said a senior NRB official. “But nobody heading the management made efforts to recover the loans.”

While declaring Gurkha crisis-ridden on March 25, 2011, the central bank had given it a six-month time to work for revival. The central bank had asked Gurkha to reduce its nonperforming loans to 5 percent.


MD Domzan ousted

A meeting of the Gurkha Development Bank board on Monday removed Managing Director Amod Domzan and decided appoint Raj Kumar Rai to the post.  The troubled bank has sent Rai’s name to the Nepal Rastra Bank for approval, over which Domzan has written a note of descent. “Until the central bank decides, Chairman Prem Begha will work as executive chairman,” said a Gurkha source. However, as a central bank directive has barred a BFI chairman from holding executive post, there are doubts about whether NRB would allow Begha to function as executive chairman. According to a Gurkha source, Domzon has questioned Rai’s eligibility to hold the post of chief executive as he has ‘never worked in a BFI’. Rai is a chartered accountant.

Source: The Kathmandu Post

Loans against shares drop

KATHMANDU, SEP 11, 2012

The continuous decline in loans against shares floated by commercial banks seems to have slowed down with the bullish share prices as the fiscal year approached the end.

In fiscal year 2011-12, total loans floated by banks against collateral of non-government securities had declined by 3.8 per cent, according to data published by Nepal Rastra Bank.

In the previous fiscal year, the amount of such loans had gone down by 23.3 per cent. Commercial banks extended loans worth Rs 4.8 billion by end of fiscal year which amounted to Rs 5.8 billion in the beginning –– July, 2011. In July, 2010, banks portfolio contained loans worth Rs 6.75 billion. The steady decline in share prices coupled with escalating interest rate and the central bank enforcing margin on such loans had squeezed the loans.

However, following the bull-run at the Nepse from mid-April, the amount of loans forwarded against securities as collateral has grown. Though the Nepse index had slumped by more than 15 per cent by the ninth month, in the last three months it surged by about 30 per cent. The benchmark index was then down near 300 points in mid-April which rested near 400 points at the end of the fiscal year.

The amount of loans against shares increased by seven per cent in the last month as compared to the 11th month. “The appreciation in share prices encouraged investors to seek loans to buy shares,” said general secretary of Nepal Investors’ Forum Raj Kumar Timilsina. “Number of Initial Public Offerings in the later part of the year also got investors to borrow from financial institutions to apply for loans pledging shares,” he added.

Even though regulators have opened up margin financing based on brokers’ guarantee even during blank transfer of the shares, not all brokers and financial institutions have come aboard, since June. “We are still holding talks with Nepal Bankers’ Association, Nepal Development Bankers’ Association, and Nepal Finance Company Association to design a working plan so that all brokers and financial institutions get uniform procedures for margin financing,” said president of Stock Brokers’ Association of Nepal Anjan Raj Paudyal.

After much struggle, investors had convinced the capital market regulator ––Securities Board of Nepal –– and banking regulator –– Nepal Rastra Bank –– to allow margin lending based on brokers’ guarantee even during blank transfer. “If all brokers and financial institutions start providing margin finance then investors will get loans more easily and at competitive interests,” pointed out Paudyal. Financial institutions are charging 12 per cent to 16 per cent as interest rate for loans against shares, and margin is determined by the institutions themselves.

Source: THT

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 tweaks deprived sector lending provision

KATHMANDU, June 4, 2012

Banks and financial institutions can now classify every group loan of up to Rs 10 million extended to cooperatives, other than savings and credit cooperatives, as lending to the deprived sector, according to a latest directive issued by the central bank on Sunday.

Nepal Rastra Bank (NRB) in its directive has however, said cooperatives cannot channel such credit amount for purposes other than group farming, poultry farming and animal husbandry. Loans to each member of cooperative also should not exceed Rs 90,000, the directive has said.

“The provision was introduced to promote the agricultural sector,” NRB Spokesperson Bhaskar Mani Gyawali said. “We hope this will encourage banks and financial institutions to flow credit to the sector.”

The directive was introduced at a time when NRB has directed all banks and financial institutions to extend at least 10 percent of the total lending to agriculture and energy sectors. The directive is also expected to help banks and financial institutions to meet their deprived sector lending target, which stand at 3.5 percent, 3 percent and 2.5 percent of the total credit portfolio for commercial banks, development banks and finance companies.

“But in case such credit is misused, banks and financial institutions have to label them as bad loans and slap 150 percent risk weight,” the directive has said. “However, no additional fee should be charged in case the borrower wants to clear the debt prior to maturity because of change in interest rates or terms and conditions,” the directive has said.

Meanwhile, the central bank in its directive has also said that loans extended by microfinance institutions with condition of recouping the outstanding payment on installment basis should be classified as term loans. “But such credit should be categorized as sub-standard, doubtful or bad loans even if the borrower defaults on payment of one installment,” according to Nepal Rastra Bank.

Source: Republica

Banks credit flow drops 5%

KATHMANDU, March 31, 2012

The credit flow of commercial banks to various sectors dropped 5 percent in the first seven months of the current fiscal year, exposing the lingering problem of suppressed credit demand that has lately hit the banking sector.

Thirty-two commercial banks extended Rs 36.18 billion in loans in the seven-month period through mid-February, as against Rs 38.14 billion recorded in the same period last year, latest figures compiled by the Nepal Rastra Bank show.

The data shows that credit flow in the production sector, which absorbed over 35 percent of the total bank loans, fell by 21 percent to Rs 13.59 billion in the seven-month period from Rs 17.21 billion in the same period last fiscal year.

Loans extended to wholesalers and retailers also slumped to Rs 5.13 billion in the first seven months, as against Rs 10.9 billion in the same period last fiscal year.

The services sector was not any better in absorbing bank credit as loans extended to the sector dipped to Rs 2.78 billion in the review period from last fiscal year´s Rs 3.29 billion.

Among others, credit extended to import vehicle, aircraft and their parts also plunged by over 71 percent to Rs 394.4 million this year from Rs 1.39 billion recorded in the seven-month period last year.

Bankers attributed the cause to stagnancy seen in the real estate market and slump seen in the manufacturing sector that have started affecting various sectors of the economy as well.

However, not all sectors have seen shortfall in flow of credit this year.

Agriculture sector, for instance, attracted Rs 4.74 billion in loans in the first seven months of the current fiscal year. The sector had attracted credit of Rs 822.5 million in last fiscal year.

Although the central bank in January had directed banks to extend at least 10 percent of the total loan to agriculture and energy sectors, few bankers expressed surprise over the huge credit growth in a small period of time.

However, others like Rajan Singh Bhandari, whose Citizens Bank has introduced micro loans of up to Rs 500,000 for farmers and others related with agriculture sector, said there was huge demand for such loans.

“In a week, my bank was able to issue Rs 20 million worth of 500,000-rupee loans,” he said.

Likewise, loans to construction sector also went up by a whopping 141 percent to Rs 4.99 billion from Rs 2.07 billion last year. Similarly, loans to mining sector topped Rs 959.5 million this year, up 431 percent from last year´s Rs 180.4 million.

Source: Republica

Reserved Optimism

KATHMANDU, MAR 4, 2012

Reserved The realty is expecting some boom with significant growth in interest of the buyers and investment in the sector. With Nepal Rastra Bank easing up and some relief provided by the budget earlier this year, transactions have soared in the recent months. In addition to this, Department of Land Reform and Management is hopeful about achieving its goals regarding revenue collection in the current financial year, restoring the sector to its previous glory.

“However, it is too early to assume the realty will redeem itself from ongoing recession,” says Kamal Prasad Timalsina, undersecretary of Department of Land Reform and Management. According to him, the winter season is the peak season for the transactions related to land, raising the revenue collection.

As Nepali months of Poush and Magh are off-season for usual agricultural activity, they are most preferred time for purchasing and selling of the lands and real estate. Hence, Timalsina considers it to be too early to determine that the rises are due to the actual recovery of the realty. “Nevertheless, we not just met but exceeded our target of Rs 405.58 millions by collecting Rs 416.56 millions, making the total collection surpass the estimation by additional two per cent,” he shares.

The Department of Land Reform and Management has already achieved 73.81 per cent of its target set forward in revenue collection for this financial year. He adds, “Our target is that of Rs 4.40 billion and if the current trend continues, we are almost sure to meet the remaining 26 per cent easily by the end of this fiscal year.”

Last year’s collection on land revenues compared to the same time this year was just Rs 273.31 million, which is less by Rs 140 million. Moreover, the changes in the policies regarding disclosure of income source for transaction above Rs 10 million from previous Rs 5 million ceiling and facility for investors and Non Resident Nepalis, recovery of A-grade banks from their investments in the real estate, et cetera can be seen as the contributing factor for revival of the sector in recent months.

Dilip Neupane, vice president of the Realtors, says, “The transactions have indeed risen in last two months, but the reforms regarding house loan interest still needs to be brought forward as the investments done so far are on the small plots rather than bigger one. In addition to this, if someone had bought a piece of land at the rate of Rs 1.50 million per aana through bank loan, his cost has now been added by the bank interest and gone up to around Rs 1.80 million. Thus, this has resulted in the holding of the land by many such property owners, restricting the smooth flow of transactions.”

According to him, until the bank loan eases from its current 13 to 14 per cent and relieves such investors, the authentic appraisal of the sector is still unrealistic.

“People do not have confidence while investing in the realty as they are worried that their cash will be frozen once invested in these immobile assets. Thus, to continue this ongoing acceleration, it is very essential to revise these flaws.”

While the experts admit to the current acceleration in the realty sector, they are still sceptic about the longevity of the gained momentum. Nevertheless, if the trend continues, the realty — especially the land — could be a safe landing for the sector.

Source: THT

Valley still major market for BFIs

KATHMANDU, FEB 23 - 2012

The proliferation of banks and financial institutions (BFIs) may have done wonders to expanding Nepali people’s access to formal banking channels, but Kathmandu Valley is still the largest market for BFIs when it comes to deposits and lending.

According to The Economic Survey, there was one bank branch for every 23,800 people in 2010-11 compared to one for every 29,300 people in 2009-10, thanks to BFIs’ aggressive expansion drive. But the valley accounts for a majority of financial activities of banks, according to a recent study of Nepal Rastra Bank (NRB). The study shows that about 70 percent of total bank deposits is collected from the three valley districts—Kathmandu, Bhaktapur and Lalitpur—and around 65 percent of the total lending in done within the valley.

According to the central bank’s ‘Economic Activities Study Report’, of the total bank deposits of Rs 725.90 billion at the end of fiscal year 2010-11, Rs 493.01 billion (67.91 percent) was collected from the three valley districts. Similarly, of the total lending of Rs 586.50 over the period, Rs 375.72 billion (64.64 percent) is lent within the valley.

Bankers did not find the statistics surprising. They say the figures reflect the state of country’s economy—economic activities concentrated in the valley. “The bank branch expansion has definitely made people’s access to formal financial system easier, but economic activities did not expand simultaneously,” said NIC Bank CEO Sashin Joshi. “A Majority of businesses have their offices in Kathmandu and their activities are concentrated here. Therefore, the credit flow is concentrated here.”

According to regulators, another major reason behind the deposit/lending concentration within the Kathmandu Valley is due to the demographic concentration. “Population in the valley is high,” said Maha Prasad Adhikari, deputy governor at NRB. “Also, the earning and spending capacity of the people living within the valley is higher compared to those living in other parts of the country.”

Due to issues like infrastructural constraints and improper supply chain, economically active people—both business person and employees—live in the valley. This concentration, according to bankers, will take some time to disperse. “Once there is infrastructural development in other part of the country and more employment opportunities are created there, this trend will discontinue,” said Ajay Shrestha, CEO of Bank of Kathmandu. “Also, as it has been only three years since BFIs went for massive expansion drive, it will take some more years for other parts of the country to be the major market for them.”

Apart from the valley, bank deposit/lending concentration is seen in urban cities. According to Joshi, cities like Pokhara, Butwal, Biratnagar, Birgunj and Nepalgunj are major contributors to his bank’s deposit portfolio and a majority of lending done in cities like Birgunj, Biratnagar and Pokhara.

The NRB report shows deposit/lending concentration is declining, but at a ‘very slow’ pace. The valley accounted for 69.90 percent of the total deposits in 2008-09 and 69.12 percent in 2009-10.

In case of lending, 65.58 percent of total credit flow was within the valley in 2008-09, which came down to 64.88 percent in 2009-10.

Source: Kantipur

Accounts Manipulation Lands Finance Company in the rollercoaster

A day after Nepal Rastra Bank (NRB) decided to liquidate Nepal Development Bank, another financial institution has landed in trouble for trying to cook up its balance sheets.

World Merchant Banking and Finance Limited, a finance company, initially thought accounts manipulation would help it hide its bad loans, but this immoral act has proved self-defeating and causing a long-term damage on the company.

The entire saga began in December 2002 when a company named Eastern Suppliers approached the finance company for a loan of nine million rupees to supply coal to Udaypur Cement Factory. The amount was given in two installments of two and seven million rupees of which Rs 1.83 million has been recovered. But when Eastern Suppliers deferred payment after repaying Rs 1.83 million, the finance company became suspicious and contacted Udaypur Cement Factory.

To the surprise, Udaypur Cement told that the tender for supplying the coal was scrapped after Eastern Suppliers was found delivering inferior quality of coal. This meant the money that the finance company had lent to the company was at risk. This sent alarm bells in World Merchant as the finance company established a year ago was on the verge of running in loss in the very first year of its operation.

Fearing this would tarnish the image of the company; the evil bankers formed an unholy alliance with the borrowers and created a new loan portfolio but transferred the same ´troubled´ loan amount in the account created in another person´s name.

In other words, the finance company´s balance sheet showed that the amount owed by borrowers was paid back and new loans were issued to new applicants. "But, in fact, the finance company was, only transferring the liability from one person to another, without recovering a single penny from the original borrower," said a high ranking official of World Merchant, requesting anonymity.

At that time Ranjit Koirala was the CEO of the finance company, who currently lives in the US.This illegal practice of transferring the ´troubled´ loan into a new person´s name continued for five years till 2007, when borrowers started asking the finance company to release some of the land held as collateral by the finance company. "To coax the management the borrowers paid back Rs 700,000 of the loan amount. But we did not agree," said the source. Then subsequently, the borrowers started claiming they did not owe any money to the finance company and it had failed to deduct the installment amount that borrowers had paid over the years, which, the finance company calls a "total lie." "We challenge the borrowers to show cash receipt if they had truly repaid the loan amount," said the source.

Then the matter went to the police and in January 2008, it asked the finance company to submit all the documents involved in the loan transaction. Then the central bank became wary of malpractices going in the financial institution and in April 2008 it warned World Merchant to discontinue the illegal practice of transferring liability of loan amount to new persons. Soon after this, the finance company listed the main borrower, Rakesh Raj Sharma Dhungel of Biratnagar and eight other guarantors, as willful defaulters.

According to the finance company, the borrowers owe Rs 14.56 million, including principal and interest, of which Rs 10.59 million can be recovered through foreclosures.

Today the management of the finance company acknowledges that it "made a mistake by establishing partnership with people having bad intentions." "Moreover, we made a mistake by not making public statement on what went wrong at the finance company. We were worried about losing our reputation," the source said. "But the damage has already been done."On June 14 this year, Binit Mani Upadhyaya, CEO of the finance company, was arrested after borrowers lodged a complaint at the Commission for the Investigation of Abuse of Authority.
Since then depositors have withdrawn around Rs 400 million from the finance company. "But we are not facing cash crunch as the central bank is indirectly pumping money into the financial institution," the source said. The company is trapped in the mess that it had engineered itself.

Source: myrepublica.com
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