Central bank asks traders to stop hire purchase loans

The central bank has asked the traders to stop hire purchase loan that they have been providing their consumers

Earlier, traders involved in selling automobiles, electronic appliances and gadgets have been providing the hire purchase loan to attract the customers but the lending is a formal banking business and should be done through banks and financial institutions only, the central bank said.

"The Banking Act has strictly spelt out that activities like collecting deposits and providing loans can be done by licensed financial institutions only, and no seller can provide hire-purchase loans to customers,” according to the central bank spokesperson Bhaskar Mani Gyanwali.

Most automobile dealers, and electronic appliances and gadgets suppliers often sell products in easy installments, and people with steady incomes can buy the goods without having to pay an initial lump sum.

The central bank has also extended the deadline till mid-July 2014 for directors, chief executives and top management officials of financial institutions to adjust the loans already taken. However, they can obtain personal loans, education loans, home loans, hire-purchase loans, loans against government securities, and credit card loans.

In the Unified Directives 2069, the central bank has forbidden a financial institution to forward loans to directors, chief executives and top management officials of other financial institutions to minimise their risk taking behaviour. The decision had raised quite a furor in the banking community.

Moreover, the central bank has also forbidden auditors or an auditing firm partnered by a majority shareholder with more than one per cent stake in a financial institution to audit the financial institutions’ borrowing firm or individuals.

“This provision will remove incidences regarding conflict of interest among auditors and the companies being audited,” pointed out Gyanwali.

Likewise, Nepal Rastra Bank (NRB) has also allowed class ‘D’ financial institutions to work as insurance agents for their member borrowers provided they get a licence from the Insurance Board. The move will help in marketing microinsurance products among the rural population.

 

AGM clearance procedure

KATHMANDU: The central bank has introduced the AGM Clearance and Dividend Working Procedures for commercial banks. The Procedure spells out the conditions and provisions for the dividend declarations. “Banks need to get their financials approved by the central bank before they publish it to avoid any changes due to adjustments by the central bank afterwards. Likewise, financial institutions are allowed to declare cash dividend only if commercial banks have capital adequacy of 11 per cent, development banks and finance companies with 12 per cent and microfinance institutions with nine per cent. Likewise, financial institutions cannot give dividends if their net worth is negative.