KATHMANDU: The annual budget for next fiscal year has addressed the crisis of confidence of the public on financial sector. However, government’s pumping money in the cooperatives has raised serious concerns about further inflating already enormous semi-formal financial sector.
The liquidity-starved financial sector is supposed to get breather as the budget has introduced provision for voluntary declaration on deposit exceeding Rs 1 million that the money is not earned by illegal activities such as terrorism and other organised criminal activities.
“Earlier people were wary of depositing in the financial institutions due to unclear motive of source disclosure, as the depositors will not be required to disclose the source of income but with the budget assurance, deposit might grow,” said president of Nepal Finance Companies Association Rajendra Man Shakya.
The measures to be implemented for improving the corporate governance of the financial institutions as mentioned in the budget will definitely help in restoring the depositors’ confidence that is the crux of the problem.
The budget has announced to include deposit insurance to class ‘A’ financial institutions as well and gradually increasing compulsory deposit amount to be insured to Rs 500,000. “The plan of increasing deposit insurance amount will further help in bringing back the trust of the common people,” said president of Nepal Development Bankers’ Association Manoj Goyal.
The government has also waived the registration fees on the merged entities to encourage mergers. However, the bankers seem to be expecting more from the government regarding the incentives for the banks and financial institutions to opt for merger. “There should have been more on merger that could have addressed the issue of employee management,” pointed out Shakya.
As mentioned in the budget the financial cooperatives dealing in large scale deposits will be brought under the central bank’s supervision will also transform the informal financial sectors as the formal one. However, this has raised huge questions regarding the central bank’s capacity to regulate the cooperatives at a time when central bank’s regulatory capacity is under scanner due to lack of manpower.
“The budget has addressed many of the existing troubles of the financial sector and might help in easing liquidity,” said economist Dr Chiranjibi Nepal. “However, the budget should have set up a liquidity management fund to inject liquidity to the cash-strapped financial institutions,” he said, adding that reducing capital gain tax on share transaction will boost the capital market along with the probable introduction of internet based transaction and provision of NRN investment is a welcome move.
Any one purchasing a vehicle of less than Rs 5 million and real estate of less than Rs 10 million does not require declaring sources of income, according to the budget. “The provision of self-declaration of income source and increasing the ceiling for income source disclosure while purchasing assets such as house and vehicles will help in reducing instances of capital flight,” said Prof Dr Bhishamber Pyakurel.
More in the basket
• Micro insurance to be launched in some hilly districts in pilot basis.
• Establishing a separate micro finance fund to provide micro credits to poor and deprived.
• Concession to be provided for investments coming from institutional investors such as Mutual Funds.
• NRNs and foreigners to be allowed to purchase apartments in Nepal to promote housing sector.
• Guide to be prepared for NRNs to let them buy shares.