KATHMANDU, July 29: Along with tightening its policy for establishing a new bank, Nepal Rastra Bank (NRB) has added a number of conditions for upgrading financial institutions to higher category and barred them from opening new branches without its approval.
According to the Monetary Policy for the fiscal year 20010/11 announced on Wednesday, apart from the required capital, decision regarding upgrade will now depend upon feasibility study, institutional capacity and existing competition.
Similarly, on the top of the required paid-up capital, the policy has announced that professional capacity and experiences of promoters, qualifications of promoters and directors, accessibility of commoners to financial services, among others, will be considered while granting licenses to new financial institutions.
The newly announced policy has also vowed to ´manage´ perks and benefits of directors, chief executive officers and other high-ranking staffers by not only making payrolls transparent but also compatible with financial system.
The process of accepting applications for establishing a new commercial bank has been suspended for now, said the policy. However, the suspension will not be applicable for those banks that have foreign partnership with huge investments and high technology, the policy stated.
The central bank said that it will continue to adopt a policy of relaxing credit flows to housing sector that relatively has higher value addition and tightening fresh loans to land transactions. As per the new policy, financial institutions have to limit their loans exposure to 10 percent of the total lending within the next two years.
The policy has also checked ongoing practice of using promoters´ shares to pledge as collaterals to take loans from banks and stated that promoters will be allowed to pledge only 50 percent of the shares owned by them as collaterals. NRB will adopt a policy of discouraging multi-banking transactions as it increases risks to loans, said the policy.
The policy has revised the Statutory Liquidity Ratio (SLR) to 15 percent, which includes Cash Reserve Ratio of 5.5 percent, SLF of 8 percent and the vault cash. The bank rate has also been increased to 7 percent from existing 6.5 percent.
Similarly, the lending rate for central bank´s refinancing to financial institutions against their good loans has come down to 7 percent from 7.5 percent.
On foreign exchange front, the monetary policy has announced of adopting policy to bring remittance coming from India through banking channel. The deprived sector lending, which has been fixed at 3 percent of the total lending, has been imposed to development banks and finance companies at 2.5 percent and 2 percent respectively.
Similarly, financial institutions have been allowed to extend per family loans up to Rs 250,000 through deprived sector lending in order to promote animal farming in rural areas.
The policy has arranged collateral free loan up to Rs 200,000 for those members of deprived family who have obtained technical education equivalent to higher secondary education.
Bankers disapprove control over CEO´s perks
Bankers on Wednesday welcomed the new instruments that the new monetary policy adopted to mitigate existing macro-economic challenges, but disapproved its announcement to regulate salary and perks of chief executive officers and other top managers.
“The effort of Nepal Rastra Bank (NRB) to enforce transparency in salary and perks of top-level bankers is a welcome move. But it must not be controlled,” said Sashin Joshi, the president of Nepal Bankers´ Association.
Talking to myrepublica.com, he further showed concerns over the policy remaining silent on their demand of raising the source disclosure limit from the existing Rs 1 million.
“This source disclosure provision was one major cause behind liquidity crunch in the system. By not addressing it, the central bank has continued to leave the system vulnerable,” he said.
Bankers further said that the new policy´s provision that restricts banks from depositing money in other financial institutions for interest income will also make it difficult for banks maintain liquidity at the stipulated level of 20 percent.
“The provision will instantly lower deposits volume by Rs 5 to 6 billion,” said Sudhir Khatri of DCBL Bank.
Source: http://www.myrepublica.com/portal/index.php?action=news_details&news_id=21562
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