Development Finance Institutions commit increment in investments in Nepal

The Second Development Finance Institutions (DFI) Mission, that started on Tuesday in Nepal, concluded today with a commitment to explore investment opportunities in Class B Banks, Micro-Finance Institutions (MFIs), and Digital Financial Service Providers, following productive deal facilitation sessions held during the three-day mission.

During a meeting with finance minister Barsha Man Pun yesterday, DFI representatives received assurance of the government’s commitment to facilitating foreign investments. In this regard, the finance minister highlighted several amendments made earlier this week to laws aimed at simplifying foreign investments.

“The agendas linked to challenges to ease investments by Development Finance Institutions are gradually being addressed by the government, which is a positive sign to mobilise local saving and attract foreign investments," chairman of the Board of the Swiss Investment Fund for Emerging Markets (SIFEM) Jörg Frieden said, adding that the recognition of DFIs as development and economic growth partners by the government is very encouraging for our investments.

The DFI Mission, organised by Invest for Impact Nepal (IIN), was attended by 14 Development Finance Institutions and Impact Investors from the United States, Europe, and the United Kingdom and Multilateral Agencies such as the IFC.

The mission’s primary focus was on accelerating DFI investments in Nepal's financial service industry beyond Class A Banks. During the mission, DFIs delegates also had meetings with the finance secretary Madhu Kumar Marasini and Nepal Rastra Bank’s governor Maha Prasad Adhikari and the deputy governor Bam Bahadur Mishra, to discuss on the execution of the Memorandum of Understanding (MoU) between the Nepal Government and Development Finance Institutions signed in October 2023 and the issues related to easing entry and exits for DFI investments, respectively.

Representatives of the Nepal Bankers’ Association (NBA) and DFIs also explored opportunities to scale up Nepal’s Financial Service Industry and the role of DFIs to promote sustainable financing.

The First Development Finance Institutions (DFI) Mission in Nepal was held in April 2023.

The Government of Nepal, Finance Ministry and Development Finance Institutions (DFIs) signed a Memorandum of Understanding on October 31, 2023.

The MoU outlines an agreement to enhance the inflow of private capital investment from DFIs into Nepal, the need for transformative investments to achieve UN SDG goals, to foster favourable investment climate, and transfer of technical know-how and knowledge to enhance Nepal’s competitiveness.

Nepal Rastra Bank in its amendment to the Foreign Investment and Foreign Loan Management Bylaws -2080 (February 2024), has recognised DFIs as a category of investors (government/inter-government owned institutions).

The DFI Investments in Nepal from 2008-2023 has amounted to $1.1 billion with the financial sector comprising for 59 per cent of the total.

Remarkably, between 2021 and 2023, the financial sector attracted $629.9 million investments from DFIs.

Attendees of the second DFI Mission included Asian Development Bank (ADB), British International Investment plc (BII), Société Belge d’Investissement pour les Pays en Developpement (BIO), Nederlandse Financierings Maatschappij voor Ontwikkelingslanden nv (FMO), Swiss Investment Fund for Emerging Markets (SIFEM), Deutsche Investitions- und Entwicklungsgesellschaft (DEG), Finnish Fund for Industrial Cooperation (FINNFUND), International Finance Corporation (IFC), US International Development Finance Corporation (DFC), Japan International Cooperation Agency (JICA), MicroVest, DAI Capital, responsibility and Symbiotics, according to a press note issued by the IIN.

Banks not decreasing interest rates

The commercial banks decided that they will not decrease interest rates for next one month due to the current ‘tight’ situation in the financial market and soaring inflation.

Nepal Bankers’ Association’s (NBA) meeting today decided not to raise the interest rates for the next month starting from November 17.

There has been a huge cry from the private sector as the banks hiked the interest rates to contain the but still the interest rate and the inflation doesnot match. The depositors are getting 7 per cent  on their deposits whereas the inflation is above 8.5 per cent. But the private sector is blaming the central bank for supporting the Banks and Financial Institutions (BFIs) ensuring them a huge profits by letting them increase the interest rates. The private sector has also come to street to protest against the interest rates hike, which they have postponed – for the time being – citing the elections to the House of Representatives and provincial assemblies scheduled for November20.

Since mid-September, the banks have increased their interest rates on fixed deposits by 10 percentage points to 12.13 per cent, while the interest rates on savings accounts is only 7.13 per cent per annum on an average. However, the lending rate has gone up to 18 per cent, blame the private sector that funnels the borrowing to imports. But when the bank rates were low also, the inflation was more than the bank deposit rates, hurting not only the savers but also the economy.

However, increasing interest rate failed to create new deposits. But the slowdown in the economy has pushed nonperforming loans (NPL) and the cases of bad debts are also increasing, which are serious concerns. 

International rights groups call for protection of judicial independence and integrity

 The independence and integrity of the judiciary in Nepal is being jeopardised by the crisis at its Supreme Court, according to the International Commission of Jurists (ICJ), Human Rights Watch (HRW) and Amnesty International (AI).

"To uphold human rights and the rule of law, it is essential to resolve the crisis in a way that maintains and enhances the court’s credibility and independence," a press note jointly issued by the three international rights bodies issued today reads.

In an unprecedented move, 18 out of 19 justices have refused to sit on Supreme Court benches unless Chief Justice Cholendra Shumsher Rana steps down.

Boycotting a full court meeting called by Chief Justice Rana on October 25, 2021, the justices demanded Rana's resignation for allegedly undermining the integrity and independence of the judiciary. The justices pointed specifically to allegations of a relationship between Rana and the executive branch. They also cited allegations concerning the allocation of cases for hearing to specific justices, and the failure to list for hearing a number of writs against constitutional appointments that he had participated in making.

“The Supreme Court has a crucial role in upholding human rights and the rule of law in Nepal, which makes this crisis extremely worrisome for the justice process,” South Asia director at Human Rights Watch Meenakshi Ganguly said.

Following the boycott by the Supreme Court justices, the Nepal Bar Association (NBA) also called for the chief justice’s resignation. The NBA said it would call a nationwide protest, if the chief justice does not resign. On November 11, some members of the NBA were reportedly injured when police prevented them from staging a protest within the Supreme Court premises. In response to this incident, the NBA on November 12 (today) staged a sit-in at the gate of the Supreme Court.

The current crisis comes amid increasing calls for judicial reform. In July, a committee established by the Supreme Court and led by Justice Hari Krishna Karki submitted a report identifying a number of problems in the judiciary However, the Supreme Court is yet to make the full version of the report public, or to present a plan to carry out its recommendations.

"Without judicial integrity and independence, the role of the Supreme Court will be weakened significantly, making it unable to uphold its constitutional obligation to protect human rights and the rule of law,” said ICJ senior international legal adviser Mandira Sharma. "The allegations against the Chief Justice must be investigated and address through fair process consistent with the rule of law."

Under Article 101 of the constitution, if one quarter of the House of Representatives files a motion for impeachment, an 11-member impeachment recommendation committee of House members will investigate whether grounds exist for moving forward with the impeachment.

"An independent judiciary is the foundation of a rule of law-based system and respect for human rights,” said director of Amnesty International Nepal Nirajan Thapaliya. "As envisioned by the constitution, the parliament should ensure a robust, transparent, and effective investigation on the allegations faced by the chief justice to protect the integrity of the Supreme Court and to ensure public trust in the judiciary."

Banks to remain closed for five days during Dashain

 The commercial banks have decided to close their branches for five days during the Dashain vacation, according to the Nepal Bankers Association (NBA).

All the branches of all 27 commercial banks will remain closed from October 23 to October 27, the NBA decided, adding that they decided to remain closed owing to the Covid-19 pandemic. Earlier, some branches of the commercial banks used to remain open even during the festival vacation. But this year the banks have decided to close the branches – due to coronavirus spread – and promote digital services. “The customers are advised to opt for online banking in the times of a pandemic,” the NBA said.

Bankers urge central bank to review spread rate calculation method

Bankers today asked the central bank to change the method of calculating interest rate spread through the mid-term review of Monetary Policy.
They – at an interaction programme held by the central bank today in Kathmandu – said that the current calculation method will hit the profits of the banks and financial institutions (BFIs). “The provisions aimed at reducing profit of banks will affect the entire banking and financial sector,” they said, urging the Nepal Rastra Bank (NRB) to review such provisions.
The central bank should promote merger and acquisition policy to make the financial sector more reliable and robust, president of Nepal Bankers Association (NBA) Bhuvan Dahal said, adding that the provisions, however, related to spread rate calculation and others have been affecting banks. “The government policies should not affect the income of BFIs as they are expanding their services and network with huge investment in technology and security.”
The association had in August officially objected the central bank’s revision of the formula to calculate the spread rate, which they are mandated to maintain. “The change in the calculation of spread rate will directly affect the income tax being paid by BFIs and also hit their lending capacity,” Dahal said.
According to central bank rule, banks cannot include their interest-earning from investments in government securities while calculating the spread rate as allowed earlier. The central bank has also barred banks from incorporating the earnings from investment in the spread rate calculation.

Government vows to review Social Security Fund guidelines

After repeated complaints from employers, employees and other stakeholders on some provisions in the Social Security Fund (SSF), the government has finally agreed to review the guidelines within three months.
Addressing the ‘Econ-ity’ discussion on ‘Understanding the Social Security fund: Opportunities and Challenges,’ organised by Samridhhi Foundation, here today, executive director of the Social Security Fund Kapilmani Gyawali said that the government is going to make amendments of the provisions that the employers, employees and stakeholders have been seeking.
There have also been complaints that the guidelines discriminate between public and private sector employees and that participants in the fund will have to actually pay double taxes. Likewise, stakeholders have also criticised the policy as both workers and employers seem to be reluctant to participate in the social security programme.
Gyawali, however, said that the government is going to make amendments as the fund has been receiving widespread criticism due to the lower benefits it offers and unprofitable provisions. “We are going to hire a group of ‘actuaries’ from abroad, who will look into the issues being raised by different stakeholders and will make adjustments to the facilities that will be provided by the fund,” he said, adding that the provision related to insurance and taxation will also be revised. “We will come up with arrangements that can be easily integrated into the fund.”
An actuary is a business professional, who deals with the measurement and management of risk and uncertainty. Saying that Social Security Fund is working on solving the issue of taxation also, Gyawali said that the government is ready to amend the law after objections were raised regarding the age limit of retirement and insurance arrangements being unrealistic and the fund being discriminatory between public and private sector employees.
Speaking on behalf of Nepal Bankers Association (NBA) chief executive officer of Agriculture Development Bank Anil Sharma said that they have observed some contradictory provisions in the Act. As a representative of the private sector, he believes that there is a need to discuss on the Act itself. “The scheme should be sector-specific based on the varying needs and capacity of different sectors or the same for all sectors,” he said, agreeing on the fact that a lot of shortcomings need to be handled addressing all the issues in order to achieve positive outcomes.
Likewise, vice president of Confederation of Nepalese Industries (CNI) Rajesh Agrawal, on the occasion, stressed on the need to balance the schemes in regards to varying sectors. He also ensured that CNI has also raised voices for the small and medium enterprises (SMEs) and not just the large corporations. He further ensured that they will address the needs of the SMEs in the social security scheme in the days to come.
Discussing on various frameworks in regards to the contribution based social security scheme, the participants delved into the emerging trend with the implications of the recent developments and benefits that will accrue the people from different sector. Likewise, the programme attempted to inform on the possible directions that Nepal is heading towards to ensure stability and security.
Participants, on the occasion, however asked why the government has treated private-sector employees as second class citizens. “This is obvious when we compare the benefits contributors receive from the Fund with benefits the government employees receive from Pension Fund,” a participant said, adding that the most of the government and private sector associations are currently associated with the Citizen Investment Trust (CIT) and the Employees’ Provident Fund (EPF) and since these two organisations provide better facilities there was no point in joining the scheme.
Though, the government has launched the programme with much fanfare last year, Social Security Fund has turned to be only a ‘pension scheme’ that offers benefits far below the existing EPF and CIT.
A researcher at Samriddhi Foudnation Ankshita Chaudhary began the session by giving a brief introduction of the emergence of the contribution-based social security scheme. The presentation highlighted – the inability of the SMEs to cope with rising costs, differences between the government and private sector employees, issues of taxation, among many – some of the difficulties associated with the fund.
Under the Social Security Fund, enrolled employees will be entitled to assistance for medical treatment, health and maternity protection, accident and disability protection, dependent family protection, and elderly protection (pension). The employers, who have signed up in the Social Security Fund system have listed over 50,140 employees for their contribution in the scheme.
Last week also, a team from the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) had requested the government to revise and include more realistic provisions that could help attract more contributors.

BFI employees not interested to join Social Security Fund

Banks and financial institutions (BFIs) expressed their reservations on Social Security Fund (SSF) despite the government and central bank’s direction last week on mandatory enrollment.
The members of the Nepal Financial Institution Association (NFIA) – an association of people working in banks and financial institutions – threatened to launch protests, if the central bank forces then and does not roll back its direction of mandatory participation in the scheme.
“The regulatory body has issued a circular without consulting BFIs,” according to a press note issued by the association. “It is not under the jurisdiction of the central bank to direct BFIs to join the scheme,” the press note reads, adding that financial institutions will not join the social security programme as it does not ensure basic rights of workers in the financial sector. “We will be compelled to protest, if central bank does not roll back its direction.”
They have been demanding that the government include insurance policy for dependent family members of the banking staffers. Likewise, they are also demanding that mandatory registration of staffers in the Social Security Fund for those who had joined the institution after the fund has been established.
The government fixed November 30 deadline for the private sector to get listed in the scheme, which aims at providing pension to retired employees of the private sector as well. Though, government is planning to extend the deadline to convince more private sector institutions – especially BFIs – in the scheme, the private sector employees are not much interested in joining the scheme.
Meanwhile, commercial banks have also expressed their concern in the scheme. They, though, claim that the scheme is good, the bank employees are not interested as they think they are not ensured of the basic facility that they have been getting.
“We are already registered at the Employees Provident Fund (EPF) and Citizen Investment Trust (CIT),” the association said, adding that they are not interested in joining the scheme as they are not ensured of facilities that they have been already getting through EPF and CIT.
Likewise, Nepal Bankers Association (NBA) is going to held meeting with the central bank to rely their concerns. Some 131,577 workers and 11,797 employers have been listed in the social security scheme till date.

NBA honours pioneer banker Pandé

Nepal Bankers’ Association (NBA) today felicitated renowned banker Prithvi Bahadur Pandé for his remarkable contribution to the banking sector over the last four decades and also the role he has played in strengthening financial sector.
During the 23rd annual general meeting of NBA today, central bank governor Dr Chiranjibi Nepal felicitated the chairperson of Nepal Investment Bank Ltd (NIBL) Pandé, as one of the pioneers in banking industry.
Pandé, who started his carrer from the central bank as a chartered accountant (CA) in October 1978, is also the former president of NBA. Remembering his days at the central bank, he said that the experience he gained during his time at the central bank laid the foundation, opened up opportunities, boosted his self-confidence and expanded his network, which in turn prepped him for the career shift as a commercial banker.
Following a decade-long service at the central bank, Pandé joined the first Nepali-led joint venture Bank – Himalayan Bank Ltd (HBL) – in 1988. After managing Himalayan Bank for 10 years, Pandé became engaged with Nepal Indo Suez Bank. When Nepal Indo Suez Bank opted to walk out of Nepal, Pandé – along with his friends – dared to buy it and gave birth to the current Nepal Investment Bank, against the then popular belief that Nepalis cannot manage bank. It has now been seven years since he stepped down from his role as an executive chairman of Nepal Investment Bank.
Pandé, on the occasion, also emphasised that the large number of banks is the key challenge for the banking sector today. “The central bank realising this has brought the policy to consolidate the financial institutions,” he said, adding that the central bank is on the right path as the country needs more mergers and acquisitions of banks.
However, according to Pandé, the bankers, especially the promoters, should shed their egos and put the welfare of the industry – rather than themselves at the centre – for the successful mergers. “The lower the number of banks more stronger and better they are, with lower overhead costs that ensure greater outreach and diversity,” he said, adding that the government and the central bank should also provide more incentives to quicken the process of consolidation.
Pandé, on the occasion, also urged banks to keep pace with rapid advancements in technology and come up with new products in tune with the times. “If banks just continue to stick to traditional banking, they will face difficulties in the future.”

IPPAN plans agreements in Power Summit

Independent Power Producers’ Association-Nepal (IPPAN) is going to sign eight agreements with foreign firms and lender companies during the Power Summit scheduled to be held in Kathmandu on November 21-22.
According to the IPPAN, National Hydroelectric Power Corporation, India and Hydroelectricity Investment and Development Company Ltd, Nepal will ink a hydropower development agreement. Likewise, Nepal Power Exchange Ltd and Indian Power Exchange Ltd and Power Cell Bangladesh will also sign an agreement on the occasion.
“Women in Power Forum and International Finance Corporation (IFC), Nepal Bankers’ Association (NBA), IPPAN and Netherlands Development Finance Company (FMO), Investment Board Nepal and Power China will also sign a pact to construct Tamor Reservoir Project,” IPPAN press note reads, adding that the GMR Group of India and Bangladesh will also sign power trade agreement (PTA) of Upper Karnali Hydropower Project.
Some of the agreements are in negotiation phase and will be made public during the summit, according to president of IPPAN Shailendra Guragain, who thinks the summit is expected to create a platform for regional cooperation for power trade through various discussion sessions. The summit is also expected to explore new markets as well as expansion of power trade within and beyond the border.
According to the organiser IPPAN, experts from Nepal, China, India, Bangladesh, Bhutan, Japan, the Netherlands, United States, Canada, and Norway will participate during the two-day event. With the theme ‘Powering the Asian Century’, the summit – being organised under the patronage of Ministry of Energy, Water Resources and Irrigation – witnesses over 700 guests from various countries are expected to participate during the summit.
Guragain said that the experts are scheduled to deliver their deliberations on a number of topics including regional power trade, electricity market, regulation, and financing, sustainable development, execution and facilitation of the energy projects in the federal structure, foreign investment in hydropower and among others.

Gold sets historic record of Rs 70,000 per tola

The precious yellow metal price – that has been rising since the last few weeks – set a new record of Rs 70,000 per tola (11.664 grams) in the domestic market today, as it continued to rise on the sixth consecutive day today.
The price of gold surged by Rs 500 per tola today to reach Rs 70,000 per tola – for the first time in Nepal – confirmed Federation of Nepal Gold and Silver Dealers’ Association (Fenegosida). “The gold price has increased by Rs 4,500 a tola in the last three weeks.”
The hike in gold price in the domestic market is mainly due to rise in the price of the precious metal in the global market. The trade dispute between the United States and China, along with increased tariffs by the US on Chinese goods resulted in investors flocking to gold, which is considered a safe investment, pushing the gold price is expected to rise further. “Government decision to hike import tax on gold has also made gold dearer in the domestic market,” the bullion traders said, adding that the government – through the budget for fiscal 2019-20 – had increased the import duty on gold by Rs 800 per 10 grams. “Thr gold importers now have to pay import tax worth Rs 5,000 per 10 grams, against Rs 4,200 per 10 grams earlier.”
Due to continuious surge in the price, the daily demand of raw gold in the domestic market has gone down to less than 10 kg from the normal market demanded of almost 30 kg of raw gold daily, according to the federation. “Due to falling demand, the commercial banks have also stopped importing gold temporarily.”
According to Nepal Bankers’ Association (NBA), commercial banks have almost 560 kg gold in stock.
With gold prices following a high trajectory, the bullion traders said the value could reach up to Rs75,000 per tola. On Wednesday, gold soared over 2 per cent to break the $1,500 barrier for the first time in over six years.
Similarly, the price of silver has also increased by Rs 15 to reach Rs 825 per tola.

Seven banks submit central bank written commitment for 'big' merger

Seven commercial banks submitted their written commitment to the central bank for ‘big’ merger in line with recent instruction.
Nepal Investment Bank, Citizens Bank International, Sunrise Bank, Mega Bank, Sanima Bank, Laxmi Bank and Civil Bank submitted their written commitment for 'big' merger, according to a source at the central bank that has – a week ago on June 27 – summoned the chairmen and chief executive officers of all commercial banks for discussion on merger.
The central bank governor Dr Chiranjivi Nepal, on the occasion, had directed the commercial banks to come up with merger commitment by July 4 and start looking for partner for amalgamation.
“Responding to the governor's instruction, seven commercial banks have come to the NRB with their written commitment for merger, confirmed the source, who also informed that the remaining commercial banks will also follow the suit before the central bank announces Monetary Policy for next fiscal year. The central bank is scheduled to unveil Monetary Policy for next fiscal year 2019-20 by the second week of July.
The government – in its fiscal policy – announced to encourage merger among the financial institutions.
In his budget speech for the next fiscal year 2019-20, finance minister Dr Yuba Raj Khatiwada, said that the government is bringing a policy to merge banks and financial institutions.
Some of the banks, however, has said that the ‘big’ merger is not possible in a week’s notice, though some of the banks have committed to merge. “It will take at least three or four months to find the appropriate partner,” according to the president Nepal Bankers' Association (NBA) Gyanendra Dhungana.
The central bank should come up with various facilities and policy relaxations to encourage merger of Class 'A' banking institutions, he said.
After the governor's diktat on merger, the NBA – during a meeting on Wednesday – asked Nepal Rastra Bank (NRB) to come up with incentives including relaxations on prudential lending limits, ratios and directed sector lending requirement, flexibility in terms of composition of the board of directors of the merged entity as well as remove the cooling period for the CEOs.
But it will be challenging for the government banks including Rastriya Banijya Bank (RBB), Nepal Bank and Agriculture Development Bank to merge as they will face a huge opposition from their employees. Likewise, the joint venture banks – including Standard Chartered Bank Nepal and Nepal SBI Bank that have with more than 50 per cent foreign investment – will also find it difficult to get a partner to merge.

Bankers seek tax incentives to go for merger

Bankers have sought tax incentives for merger and acquisition (M&A).
As the central bank is bringing a forceful merger policy – according to the rumours making round in the banks and financial institutions – the bankers also said that the central bank cannot force them to merge but can encourage merger by announcing certain tax incentive packages. “We, the commercial banks have been operating legally by taking licences from the central bank,” they said, adding that the government cannot pressurise any bank for forced merger. “Though, the number of banks in Nepal is high and central bank plan to reduce the number through merger and acquisition is good, there has been no study on how many banks are needed in the economy.”
The government could, however, encourage banks towards merger by incentivising them in taxes, according to Nepal Bankers’ Association (NBA) that has held a meeting – today – to decide on how to seek incentives from the government before starting the merger process. “The government should reduce income tax levied on banks by at least five percentage points for a period of five years through the budget for those banks who choose to merge with others,” the association decided, adding that the banks should also be given enough time for merger and acquisition, as choosing a partner for business is a matter of taking risk.
The meeting also discussed on how to answer the central bank that had last week summoned chairpersons and chief executive officers of all the 28 commercial banks in operation to discuss possible merger. The central bank had asked bankers to submit the names of banks that they wanted to merge with or submit a commitment letter for merger before the Monetary Policy that is scheduled to be announced in mid-July.
The government – through the budget for fiscal year 2019-20 – had also announced to adopt policies to encourage mergers between banks and financial institutions (BFIs).

Government may interfere in interest rate

The government could interfere in the banks to force them to bring down interest rates, if necessary, according to finance minister Dr Yub Raj Khatiwada.
Addressing a programme mark to celebrate 10th  anniversary of National Banking Institute (NBI) today in the valley, he said that profiteering is good but it should be in the limit. "The banks and financial institutions should refrain from making excessive profits," he added.
The government is under pressure from the private sector to lower the interest rates. Prime Minister KP Sharma Oli has yesterday directed Khatiwada to talk to bankers on interest rates.
However, speaking at the same programme, Nepal Bankers Association (NBA) president Gyanendra Dhungana said that it is not possible to bring down the interest rate to single figure. "Industrialists should not be very optimistic about lower interest rates as the base rate of the banks stands at 10 percent," he added. According to the central bank rule, the banks and financial institutions can add upto 5 per cent in the base rate while lending.
Khatiwada, on the occasion, further said that the country is in need of carrying on the agenda of good governance, high integrity, and greater banking efficiency through the best service at the least cost possible by leveraging resources in the most productive areas.
Likewise, central bank governor Dr Chiranjivi Nepal called for a massive transformation in traditional payment system due to advancement in technology. He also highlighted the needs for providing better, affordable services to customers as well as service automation in quest of higher efficiency and risk management
Dr Khatiwada and Dr Nepal jointly inaugurated the programme, where NBI also hosted a Banking Conclave with the theme 'Deliberation for the next Decade'. Some leading banking professionals including MD of State Bank of India Dinesh Khara, MD and CEO of IDFC Bank V Vaidyanathan, Banking expert and Independent Director of State Bank of India Sanjiv Malhotra, Treasurer of HDFC Bank Ashish Parthsarathy, CEO of Foreign Exchange Dealers Association of India (FEDAI) Ashwani Sindhwani and the renowned business journalist from India Tamal Bandyopadhyay spoke on the occasion.
NBI is collectively established by the central bank and Nepal Bankers’ Association with support from Asian Development Bank (ADB) and the government.

Bankers agree to bring down deposit rate

Nepal Bankers’ Association (NBA) has decided to cap the interest rate on savings, individual fixed deposits and institutional fixed deposits, bowing down to strong pressure from the Finance Ministry and central bank.
The association today – during a meeting – agreed to provide maximum of 9.25 per cent interest to individual depositors, 8.5 per cent to institutional depositors, 6.5 per cent in saving deposits and 4.5 per cent on call deposits.
The decision will come into effect from tomorrow, though the unnatural decision to suppress the rates could bring side effects to the economy.
The banking sector has been competing to increase interest rate due to tight loanable fund. The tightening liquidity situation has created interest rate volatility as the commercial banks began waging an interest rate war by offering higher rates to the depositors by ditching their ‘gentlemen’s agreement’ on interest rates three weeks ago.
Three weeks ago, the association had agreed to limit interest rate on savings to seven per cent and 10 per cent each on individual fixed deposit and institutional fixed deposit. But some banks – news and established ones both – had started accepting fixed deposits at up to 13 per cent interest rate lately after the association let them fix interest rate, on their own.
Following such volatile interest rate regime, the central bank has directed commercial banks to bring down the interest rate on deposits, though it could have adverse impact to suppress the interest rates.
A study committee led by deputy governor of central bank Shivaraj Shrestha has also recommended the Finance Ministry to bar banks and financial institutions from adding premium of over two per cent to the base rate while setting lending rates for the priority sector as a few banks were found adding a premium of up to 12.5 per cent to the base rate, prompting lending rates to shoot up.
Likewise, the committee has also suggested introducing a measure mandating banks and financial institutions to tie up their savings deposit rate to inflation to ensure depositors do not lose out when parking money in the financial institutions.
The commercial banks had started competing in interest rate to attract deposits, breaching their earlier 'gentleman’s agreement'. If the banks suppress the interest rates or start unhealthy competition to hike rates to lure more deposits, either way the economy is getting hurt.
On December 7, the Finance Ministry had formed a panel under central bank deputy governor Shrestha to study the impact of soaring interest rate. The panel – in its report submitted yesterday – recommended the government to put a cap on the bank interest rate to address problems seen in the money and capital markets.
The panel has presented 58 points to address the shortage of loanable fund along with the slump in stock exchange market for short term, medium term and long term.
The panel has also asked the government to reduce the risk weight in shares to 100 per cent from previous 150 per cent. It has also suggested increasing the threshold of margin on loan against shares to 65 per cent from the existing 50 per cent and allowing banks to invest up to 40 per cent of their core capital in shares. At present, the central bank has restricted banks to issue loan in shares only up to 25 per cent of the core capital. 

CNI urges central bank to hike CCD ratio, lower CRR

Against the International Monetary Fund (IMF) Article IV mission's prescription of not changing the CCD ratio, the Confederation of Nepalese Industries (CNI) has called on the central bank to increase credit to core capital-cum-deposit (CCD) ratio to 85 per cent until the time banks and financial institutions create adequate stock of loanable funds.
The IMF has said that hiking the CCD ratio – as asked by the bankers – will encourage financial indiscipline. Currently, the banks and financial institutions have to maintain CCD ratio at 80:20 meaning of every Rs 100 deposit they collect, they can only lend up to Rs 80.
The CNI has, however, asked the central bank to increase the CCD ratio to 85:15 from current 80:20.
"With deposit flow remaining comparatively lower, CCD ratio of some of the banks has exceeded 80 percent mark," according to the central bank data.
The body of manufacturing and services enterprises has also urged the central bank to reduce cash reserve ratio (CRR) for banks and financial institutions by a percentage point for the time being to enable them to extend loans.
Currently, commercial banks have to maintain CRR-portion of total deposit that needs to be parked at the central bank of 6 per cent, while development banks and finance companies have to maintain CRR of 5 per cent and 4 per cent, respectively.
Lately, some banks and financial institutions are facing severe shortage of funds that could be immediately extended as loans. Though, they are claiming of liquidity crunch, it is more of a credit crunch as they have almost no loanable funds at present.
Banks have collected fresh deposits of Rs 154 billion since the beginning of the current fiscal year from mid-July till January 13, according to the latest data of the Nepal Bankers’ Association (NBA). "But the credit flow stood at Rs 204 billion in the same period."
This mismatch in deposit collection and credit disbursement is the major reason for shortage of loanable funds.
Their aggressive lending on unproductive sectors – as the central bank claims – has sqeezed their lending capacity.
Saying that the current liquidity crunch has increased lending rates in the financial sector, the CNI said that higher lending rates will hit the economic growth.

‘Maintaining price stability is central bank's responsibility’

Nepal Rastra Bank (NRB) – as a central bank – should work for maintaining price stability, whereas the government should shoulder the responsibility of propelling growth, according to experts.
As rising inflation means decline in value of money, the central bank has to crack the whip on inflation to maintain the value of money and keep it stronger, according to head of the Central Department of Economics under Tribhuvan University Ram Prasad Gyawali.
In the budget for Fiscal Year 2016-17, the government has targeted to contain inflation under 7.5 per cent, whereas the economic growth has been targeted at 6.5 per cent.
However, the economic growth and inflation targets have been eluding the government for the past couple of years due to various reasons. The government has failed to meet economic growth and inflation targets in the current fiscal year as well. Though the government had targeted 6 per cent economic growth in the current fiscal year, the Central Bureau of Statistics (CBS) has estimated that the economy will grow by a mere 0.77 per cent.
Likewise, inflation is hovering above 10 per cent almost round the year even though the government had set a target of containing inflation below 8.5 per cent in the current fiscal year 2015-16. Due to rising inflation the value of deposit money in banks have also been eroding. Generally, banks are offering 1 per cent to 3 per cent interest on savings account. But the inflation above 10 per cent means a depositor will lose Rs 7 and the value of his Rs 100 in the bank account will be only Rs 93 at the end of the year, even after adding interest income. "Thus, its central bank's responsibility to maintain the value of the currency and tame the inflation, he added.
Nepal Bankers Association (NBA) president and chief executive officer of NMB Bank Upendra Poudel echoed Gyawali. "The central bank has to focus more on taming inflation,” he added.
The government and the central bank do not accept double-digit inflation as the failure of Monetary Policy. "Though they blame supply side constraints and non-economic reasons for exorbitant market price hike, it is the failure of the Monetary Policy,” Gyawali said, suggesting that the central bank should bring a tight Monetary Policy to contain inflation below the target for the next fiscal year.
"The government has targeted to contain inflation at 7.5 per cent in the coming fiscal year," he said, adding that there is every possibility of contain inflation at single-digit, if the central bank brings tight Monetary Policy by adopting open market operation policy. "The central bank, through its Monetary Policy, should manage financial chaos created by the government through its distributing and expansionary fiscal policy."
Due to rising inflation, depositors have been reluctant to keep their money in banks and are turning to share market which has been offering better returns compared to banks.
If the Monetary Policy marginally increases bank rates, the excess liquidity, which is fueling the inflation, can be controlled and the interest rates will go up, which would eventually attract more deposit in the banks, and also curtail capital flight. “People will be encouraged to deposit as they get comparatively more return,” added Gyawali.
The lending rates have been below the inflation, which is ridiculous, according to Sanima Bank’s chief executive Bhuwan Dahal. “Neither the lender nor the borrower is benefitting from the lower rates and also higher inflation,” he added.

Economy bleeds as blockade continues

Nepal's economy is bleeding blue as the stand-off between government and Tarai-Madhesh centric political parties, and India lingers. Fecklessness on the part of both government and Tarai-Madhesh centric parties is pushing the situation toward the brink.
With the Madhes in turmoil since the last 80 days, importers have been incurring huge demurrage charges at Kolkata port, the key route for Nepal's third country trade. The importers have been paying Rs 40 million per day as demurrage charge at Kolkata port, according to president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI) Pashupati Murarka. He also claimed that the country is losing Rs 2 billion per day due to the unrest and the government's politics first policy. "The country has already lost Rs 160 billion in these days," he said.
Likewise, the government has lost Rs 25 billion in revenue in the first three months of the current fiscal year as the revenue mobilisation has dropped by 10.22 per cent compared to the same period last fiscal year, mainly due to plunge in customs mobilisation, according to the Revenue Division under the Finance Ministry. "The government has lost Rs 1 billion in vehicle tax alone."
The government had aimed at 12 per cent revenue growth for the current fiscal year as against last fiscal year. But the government has been able to mobilise only Rs 75.66 billion against the target of Rs 95.78 billion – a shortfall of 21 per cent – in the first three months.
It is mainly due to low customs revenue and value added tax (VAT), the major contributors to government coffers," thee division explained, adding that VAT mobilisation dropped by 26.43 per cent to Rs 23.58 billion against the target of Rs 32.06 billion. "VAT mobilisation is 16.41 per cent less than last fiscal year's same period," the figures further revealed.
The blockade by India has hit the customs the most as customs mobilisation stood at Rs 13.63 billion – which is a drop by 26.7 per cent compared to the same period last fiscal year – against the government's target of Rs 18.32 billion in customs revenue for the first three months of the fiscal year.
Similarly, banks and financial institutions could have lent Rs 1 billion in a working day in an average, had there been no unrest and bandhs. However, the Tarai-Madhes unrest has crippled their lending capacity, according to Nepal Bankers Association (NBA) president Upendra Poudel. "The banks and financial institutions could have lent at least Rs 70 billion in the last 80 days," he said, adding that they have not been able to lend due to loss of confidence by borrowers, and this will have a cascading impact on the economy. "The sloth in lending will not only hit the banks and financial institutions themselves but shrink the economy also."
Central bank has warned of low economic growth due to the ungoing unrest and blockade that has hit not only the trade and transit, but also contracted the economy.
According to senior economist Prof Dr Bishwambher Pyakuryal, Nepal is facing a unique combination of economic collapse and is moving toward a failed state. "Hyper inflation – due to supply side constraints because of the blockade – falling production, and private sector's loss of confidence have pushed the country toward a failed state," he said, adding that the situation has aggreviated also due to communication-gap between the citizens and the government. "It seems as if there is no government in this country, the economist said, adding that the people are in queue for petroleum products since more than a month, and the government has no clue when it can supply essential products to its populace. "It has created a huge trust deficit on government, which will lead to a question of legitimacy of the government resulting in a failed state," he added.

Central bank directs banks to hike paid-up capital

Encouraging further consolidation, central bank today directed the banks and financial institutions to hike paid up capital within next two years.
The commercial banks need to increase their paid-up capital by four fold to Rs 8 billion – from current Rs 2 billion – by the end of fiscal year 2016-17, said central bank governor Dr Chiranjivi Nepal unveiling the Monetary Policy for the current fiscal year 2015-16, here today.
Likewise, development banks should increase their paid-up capital upto Rs 2.5 billion as per their working area, he said, adding that the minimum paid-up capital requirement for finance companies will be increased from Rs 200 million to between Rs 400 million to Rs 800 million.
Nepal said that the move to raise the paid-up capital was taken to strengthen the banks and financial institutions, make them competitive and bring financial stability. "The objective is to enable a commercial bank to invest in a big infrastructure project on its own without consortium,” he said.
The banks and financial institutions have no other options than to issue rights share, bonus share and further public issue apart from merger to increase their paid up capital. Earlier, central bank had asked the banks and financial institutions to go for merger, according to their convinence. "The move will help lead merger and acquisition – the buzzword that started a decade ago – or the consolidation process in the banking sector to a logical end," said deputy governor Maha Prasad Adhikari. " The central bank move will also encourage good governance," he said, adding that the move is also aimed at bringing a mixed group of promoters to promote self-supervision.
The banks and financial institutions will have to meet the new capital requirement without reserves within the next two years according to the Monetary Policy 2015-16. "The move is aimed at encouraging mergers and consolidation apart from rights issue, bonus issue and issuing further public issue," he added.
But the bankers said that the time period of two years – to increase paid up capital –  is too short, though in the long run, they accept, they have no option than to increase paid up capital. "The merger is not a magic wand," the bankers said, adding that mergers without right partners could be disastrous.
Likewise, some bankers also argued that the move will hurt central bank’s policy of separating the professional bankers and businessmen because the latter are ones with more money to invest. "The increament of paid up capital itself is not an issue, but the time frame is too short,” said president of Nepal Bankers’ Association (NBA) Upendra Poudyal.
However, the sudden but expected move of the central bank to hike paid up capital will fuel the share market.
According to share narket analyst Rabindra Bhattarai the bull run in the share market will not last long as the investors willnot get desired return on their investments in the next two years.
The first Monetary Policy of the incumbent governor Dr Chiranjivi Nepal has, however, not changed much of the existing provisions.
The expansionary Monetary Policy has kept cash reserve ratio (CRR) and statutory liquidity ratio (SLR) unchanged, despite speculation that both could be hiked to check inflation. The Policy has targeted to keep the inflation at 8.5 per cent, though it has not devised any monetary instrument to crack whip on inflation.
The Policy acknowledging the reconstruction drive – in the aftermath of devastating earthquake – and supporting the expansionary fiscal policy lacked plans to deal with price hike, though it has focused on macroeconomic stability and fuelling growth to six per cent.
The monetary policy has also failed to come up with measures to effectively deal with the issue of excess liquidity as the banks and financial institutions currently have over Rs 100 billion of excess liquidity that could increase inflationary pressure.
Last fiscal year, central bank had raised CRR — the portion of total deposits that banks and financial institutions must park at the central bank — for commercial banks to six per cent. Likewise, development banks have to maintain CRR of five per cent as in the past, while finance companies do not have to park more than four per cent of the total deposits at the central bank like in the previous year.
Likewise, SLR — the portion of deposit that has to be invested in government securities and assets like gold — has not been changed either. But policy rate, also popularly known as bank rate, has been revised downwards to seven per cent from eight per cent. The banks and financial institutions that approach the central bank — the lender of the last resort — for loans in dire situation will start getting funds at seven per cent interest rate from now onwards.
The policy has also introduced a new concept of Infrastructure Development Bank – following the budget – as a joint venture with a paid up capital of Rs 20 billion to fund big infrastructure projects.

Paid-up capital requirement 
Institutions – existing capital – requirement in two years
Commercial banks – Rs 2 billion – Rs 8 billion

Development banks
• National level – Rs 640 million – Rs 2.5 billion
• 4 to 10 district-based – Rs 200-300 million – Rs 1.2 billion
• 1 to 3 district-based – Rs100-300 million – Rs500 million

Finance Companies
• National level – Rs200-300 million – Rs 800 million
• 1 to 3 district-based – Rs100-300 million – Rs 400 million

Monetary Policy 2015-16 Highlights
• Inflation target of 8.5 per cent
• Banks and financial institutions should bring chip-based debit and credit cards by mid-October
• Spread rate to be used for microfinance institutions also
• Special supervision of too-big-to-fail banks
• Foreign exchange facility of up to IRs 75,000 to be extended to settle payments of Indian transport companies
• Foreign exchange facility of up to $500 to be extended to Indian tourists visiting Mansarovar Kailash through Nepali tour operators
• CRR, SLR not changed
• Banks and financial institutions should invest certain portion of profit to train human resources and for corporate social responsibility (CSR)
• Banks and financial institutions can use local currency bonds to maintain statutory liquidity facility
• Liquidity Monitoring and Forecasting Framework to be revised
• Registration fees and other pre-operating expenses of foreign investors — who establish business with 100 per cent foreign investment — to be reckoned as investment
• Permission to be extended to establish national-level Infrastructure Development Bank with a minimum paid-up capital of Rs 20 billion
• Banks to be categorised as ‘Systematically Important’ depending on impact they could create on the entire financial system; separate standards to be created to regulate and monitor such institutions
• Prompt corrective action to be taken against banks and financial institutions that fail to meet liquidity requirements
• Deprived sector lending requirement raised by 0.5 percentage point
• Banks and financial institutions allowed to extend loan of up to Rs 1 million on security of land not linked with motorable road unlike current provision
• Special refinancing facility at one per cent interest to increase credit flow towards agriculture sector and small enterprises in districts with high poverty incidence

Bankers asks central bank to let them decide on additional service charges

Bankers have urged central bank to let them decide on either to charge additional service fees or not.

Nepal Bankers' Association (NBA) responding to the central bank's 14-point provision on draft proposal of Financial Consumer Protection and Financial Literacy guidelines said that they would themselves decide on additional service charges.

The bankers  – in their seven page suggestion – said that the cut in service charges will curb innovation as they have to regularly upgrade technology that needs huge investment.

The central bank on January 15 had brought the draft seeking the stakeholders feedback on service charges like charge on Any Branch Banking Services and opening and closing of accounts.
The bankers have instead asked the central bank to let them charge on bank statements of past years and bank account certification.

The bankers are, however, ready to simplify banking service, establish information and grievances hearing desk, maintaining customers' secrecy and protect data.

Banks and financial institutions should help economy make productive

Finance Minister Shankar Prasad Koirala requested the banks and financial institutions to help make economy productive.

Addressing the 47th anniversary of Agricultural Development Bank Ltd, he said that the banks and financial institutions should play a lead role in transforming import-based economy into a production-based economy. "The state-owned banks should also become competitive," he said, adding that the government is planning to lower gradually its stake in the bank to make it more competitive and self dependent. "The government has adopted zero-interference policy in the public enterprises."

Central bank governor Dr Yuba Raj Khatiwada, on the occasion said that the government intervention shouldn't be taken otherwise. "The government has its responsibility toward depositors and tax payers," he said, adding that it has to keep vigil on the banks and financial institutions. 

Urging the bank to float agri-loan at lower interest rates, he said that the older institutions do not mean they are financially strong. "They should also look back at the society and get involved in the corporate social responsibility."

Banking reform would help boost production, income, efficiency and good governance, said Nepal Bankers' Association (NBA) president Rajan Singh Bhandari.

Chairman of the bank Pramod Kumar Karki, on the occasion, vowed to make the bank more competitive and efficient in service delivery.

Briefing about the bank's plan of bringing strategic partner, chief executive of the bank Tej Bahadur Budhathoki said that the strategic partner will be inducted within September.

currently, the government holds 51 per cent stake, whereas it plans to sell 30 per cent shares to the strategic partner.

The bank – that has Rs 9.63 billion paid-up capital bank – has Rs 13 billion authorised capital. The bank has 243 branch network and is listed in the Nepal Stock Exchange. The bank's shares has been trading at around Rs 490 per unit. The bank has listed 31,930,000 units of its shares at the Nepse.