Kathmandu, July 30

Nepal Rastra Bank (NRB), the central monetary authority, has introduced new provisions for the banking sector, which, among others, prevent banks and financial institutions (BFIs) from outsourcing works related to core banking activities and reducing or raising lending rates by more than a percentage point than the published rates.

Issuing the Unified Directives, NRB has said BFIs cannot use staff supplied by business process outsourcing (BPO) companies to perform works related to core banking activities. This means staff, such as tellers and office assistants, which many BFIs source from BPO firms, will have to be hired by banks and financial institutions themselves.

The latest Unified Directives has also said variation in published lending rates and actual rates at which loans are extended to borrowers should not be more than a percentage point. In other words, if the published lending rate is seven per cent, BFIs cannot charge interest of more than eight per cent or less than six per cent.

Earlier, BFIs were only barred from extending loans at interest rates higher than published rates. Such a provision provided the leeway for financial institutions to extend credit to trusted borrowers at rates way lower than published rates.

BFIs have always come under criticism for providing cheap credit to trusted borrowers and transferring the cost of reduced lending rates to other borrowers.

“We hope the new provision will serve the interest of all borrowers,” Min Bahadur Shrestha, chief of the Research Department at NRB, said.

The latest set of directives has also barred BFIs from extending loans to companies, whose books were audited by firms owned by shareholders of the same financial institution. Also, NRB has prevented employees of BFIs from making direct or indirect participation in auctions led by Debt Recovery Tribunal or other BFIs to recover loans.

The Unified Directives has also introduced a concept called ‘Know Your Employees’ to reduce operational risks at BFIs. Under this provision, BFIs should appoint qualified human resources to the post of branch manager and other managerial posts and extend clear-cut guidelines to them.

NRB has also directed CEO and officer-level staff of BFIs to submit details of their properties and credit that they have obtained from financial institutions. These details have to be provided within 35 days of the conclusion of every fiscal year. Earlier, it was not mandatory for senior staff of BFIs to submit details of their liabilities.

Also, BFIs should clearly mention benefits and perks extended to CEOs in the contract letter. “Such benefits and perks should not add financial burden on BFIs,” says the Unified Directives.

Among others, NRB has allowed national-level finance companies to provide mobile banking services. NRB has also allowed BFIs to consider account holders whose annual transactions stand at less than Rs 300,000 as low-risk clients while conducting customer due diligence.