Banks urge NRB to review spread rate calculation method

KATHMANDU, July 5 :

Bankers have urged Nepal Rastra Bank (NRB) to review its method of calculating the spread rate cap of the commercial banks.

According to a provision of the Monetary Policy of 2013/14, commercial banks are required to limit their spread rate at 5 percent from the new fiscal year.

Though bankers were initially reluctant to implement the spread rate provision citing that such provision was against the free market policy, they have indicated that they are ready to accept it if the calculation method of spread rate cap is reviewed by the NRB.

Submitting their recommendation to NRB on the run up to the central bank´s preparation of the monetary policy for the fiscal year 2014/15, Nepal Bankers Association (NBA) - the umbrella organization of all commercial banks of the country-- has said that the calculation method of the spread rate should also include the administrative costs of the bank.

The bankers say that 5 percent spread rate calculation method of the NRB of directly reducing the interest rates on deposit and credit badly hurts the profitability of the banks.

According to the recommendation of the NBA, the cap on the spread rate should be enforced only on the ongoing loans without including the loan provisioning and write-back during the calculating process.

Bhuvan Dahal, executive committee member of the NBA, told Republica that even if the central regulatory bank decides to enforce the spread rate cap for the commercial banks it should revise its calculation process.

Similarly, bankers have also asked the central bank to provide subsidies for the banks and financial institutions (BFIs) also during the acquisition akin to the facilities provided in the merger of the BFIs.

NBA has also recommended the NRB to slash the percentage of the deprived sector lending to gradually phase out such requirement. “It is appropriate to gradually phase out the provision of deprived sector lending as the sector (deprived) lacks capacity to absorb the lending, and that there are enough microfinance institutions to provide such loans, besides the provision of the NRB to float a certain percent of loans on agriculture, tourism, energy and other designated sectors,” says the charter of recommendations of the NBA.

Likewise, the NBA has also recommended the central bank to allow the banks which have Indian rupee account in the Indian bank to invest some money for the ´overnight investment´ for some interest income.

“This would not only benefit the banks, but also the country through the interest income on the Indian currency,” reads the recommendation of NBA.

Source: Republica