Kathmandu, March 14:

Bijaya Nath Bhattarai, governor of Nepal Rastra Bank (NRB), today urged banks and financial institutions to be prepared for post-2010 period, when Nepal opens its financial sector to all.

Contemplating the facts that Nepal’s financial sector is vulnerable and immature compared to multinational banks, he urged that the Nepali financial sector should get ready to compete with them. “For this to happen, consolidation of small and vibrant units or acquisitions could be pertinent steps,” Bhattarai added.

He was speaking at the stakeholders’ discussion on the mid-term review of Monetary Policy 2006-07, today.

Citing Nepal’s commitment to the World Trade Organisation (WTO) agreement that allows international banks and finance companies to expand their network and services, Bhattarai said that international giants would have adequate capital, better network, competent human resources and technology advantage.

“In order to be ready to face the challenge, we must upgrade ourselves and the current level of non-performing assets (NPA) must be brought down to a manageable level. Human resource development, adoption of new technology as well as good corporate governance are also some vital factors that we must have before 2010,” Bhattarai added.

He also assured that the central bank would encourage the merger and acquisition process and promised to bring some more instruments that facilitate consolidation of smaller units. NRB’s role would be focused more on facilitation of the financial sector rather than ‘regulating or supervising’ it, he added.

On the occasion, NRB executive director Ram Prasad Adhikari, made a review presentation on the monetary policy and macro-economic situation of the country during the first six months of the current fiscal year.

Citing price increase in major food items and petroleum products, NRB has revised inflation for the current fiscal and projected it at 6.6 per cent from an earlier six per cent. The year-to-year consumer inflation index stood at 7.6 per cent during the first six months, which was up against the projection of seven per cent.

Upholding a recent revision of the government target, the central bank has said economic growth would slow down this year and pegged the revised growth at 3.8 per cent from the previous five per cent.

NRB has blamed poor performance by agriculture sector, which is estimated to grow by 0.7 per cent, mainly due to a sharp decline in paddy production for the revision. Due to unfavourable weather condition, Nepal’s trade deficit continues to widen and crossed Rs 52.72 billion during the review period. During the period, total exports declined by 0.9 per cent to Rs 26.59 billion, while total imports surged by 8.5 per cent to Rs 79.73 billion.

Due to a sharp rise in imports from India, NRB purchased IRs 17.72 billion Indian Currency (IC) worth $390 million from Reserve Bank of India to maintain the IC reserve level. NRB had purchased IC worth $290 million last year.

Radesh Panta, president of Nepal Bankers’ Association asked the central bank to introduce some pragmatic instruments in order to mop up liquidity in the banking system.

He said that NRB should take initiative to set up an infrastructure development bank to finance infrastructure development.