Local bodies can open operational account in development banks

Kathmandu, August 14

The Ministry of Finance (MoF) and Nepal Rastra Bank (NRB) have agreed to allow the newly formed local bodies to open operational account in the national-level development banks, if there is no commercial bank in that area.

Earlier, the government had issued a directive to the local level bodies to open their accounts in commercial banks. However, after Nepal Bankers’ Association (NBA) submitted a report to the central bank stating that it was infeasible for commercial banks to expand their branches to 225 local levels, the government has reverted on its earlier instruction.

“After consultation with the Ministry of Finance, NRB has decided to allow local bodies to open operational account in development banks,” said, Chintamani Siwakoti, deputy governor of NRB.

According to him, local level bodies, however, should have an account in a commercial bank located at the district headquarters to receive grants from the central government, which is channelled through District Treasury Comptroller Office (DTCO). “Local bodies can save and distribute funds through the operational accounts,” he added.

This means that the local level bodies that do not have access to commercial banks in their area should open two accounts, one in a commercial bank in the district headquarters and another in a development bank located in the local area. “DTCO can only send the funds to commercial banks. Therefore, certain local level bodies would need to have two accounts,” Siwakoti said.

NRB is also implementing a plan that was announced through the monetary policy, which states that if any bank or financial institution expands its branch to a remote area and opens 2,500 accounts there, it will get interest-free loan from NRB worth Rs 10 million.

“We plan to initiate the scheme targeting the areas where there is no presence of banks and financial institutions, and where local bodies will not be able to benefit from the relaxation of the rules allowing development banks to provide operational account services,” he added.

According to Bharat Raj Dhakal, president of Development Bankers’ Association of Nepal, national-level development banks are already present in 29 local levels where commercial banks have not expanded. “Besides that, we can easily expand our services to half of the remaining 196 local levels without the presence of commercial or development banks.”