The NRB has blamed the BFIs for being inefficient when it came to planning loan expansion, and for providing more credit in the unproductive sectors and the rise in interest rates
Some banks and financial institutions (BFIs) have been breaching banking norms. The Nepal Rastra Bank (NRB) called the heads of Nepal Bankers’ Association and Finance Company Association to take the necessary corrective action or be penalized. These BFIs stand accused of posing a threat to the country’s financial stability. NRB, regulator of the banking sector, following complaints of acute shortages of funds that could be provided as loans immediately, has taken action recently. They have been found to be exceeding the regulatory limit on lending for long and covering up their malpractices by manipulating figures. This NRB move comes at a time when the bankers are urging a revision of the credit to core capital-cum-deposit ratio (CCD). The NRB has refused to make an upward revision. As per the present provisions, banks are permitted to lend up to 80 per cent of the total deposits and the core capital of banks as loans. We find that many banks are not following this practice, and the CCD ratio is higher than allowed. In order to find funds to provide more loans, the banks are calling for an upward revision of the CCD to as much as 82 per cent. Incidentally, the loans were more than the deposit collection after six months in this fiscal year.
There is a slowdown in deposit collection now also due to deceleration in remittance inflow. At the same time demand for credit has grown after the trade embargo had been lifted by India. Concern has also been raised about the rapid growth in interest rate in loans breaching the requirement of interest spread of no more than five percent. It is required that the difference in the interest rates of loan and deposits should not be more than five percent. The BFIs insist that they have to raise the interest as the cost of deposits is increasing in recent months.
The NRB has blamed the BFIs for being inefficient when it came to planning loan expansion, and for providing more credit in the unproductive sectors and the rise in interest rate, which is a worrying trend. Therefore, the central bank has taken the belated step of monitoring all the BFIs to see to it that they stick to the rules and regulations that they are supposed to strictly adhere to. Meanwhile, the banks have been found providing loans to buy automobiles by as much as 90 per cent. This is happening because there is a lack of a regulation of the central bank on this. The loan-to-value (LTV) ratio should be in place for auto loans as well that is in practice for home loan, real estate loan (50 per cent of fair value) and for collateral of stocks (60 per cent). The central bank insists that it would not be revising the capital increment requirement as proposed by the BFIs. It is expected that many financial institutions would not be able to reach the capital increment target of the NRB. Under the circumstances, the BFIs missing the target would have action taken against them. Therefore, many BFIs are now in a tight spot for they have no other option than follow the rules and regulations of the central bank.
The Kathmandu Metropolitan City (KMC) is all set to conduct a feasibility study for the operation of monorail in the Valley. The KMC has reached a Memorandum of Understanding (MoU) with Cimex Inc to carry out the feasibility study for the development and operation of the monorail. As per the MoU, the trial operation of monorail will be launched within two years. The MoU for the operation of monorail was singed taking into account the topography, existing infrastructure and soil condition of the Kathmandu Valley.
Experts have also said that it will be cheaper to run the monorail than the metro train which requires tunneling under the loose soil of the Valley. In addition, the monorail does not need much space to erect concrete towers and beams over them and it can also be operated even on narrow streets. If monorail comes into operation, it will save time of commuters and it will be free from accident as it does not have to cross over other vehicles as it runs on a single rail and runs above the roads. If the system is developed all over the Valley it will also help improve air quality of the Valley, maintain environment and save time and money of the public as well as the government.
A version of this article appears in print on February 10, 2017 of The Himalayan Times.