Central bank focuses on expanding banking access to rural population

KATHMANDU, APR 05: 

Despite the increase in the number of branches of the banks and financial institutions, their service area has remained limited only to the capital due to profitability.

Kathmandu valley has more than 60 per cent of the total business of the financial institutions, according to a report published by the central bank. Since prospects for garnering more business exists in the valley, financial institutions are opting to open more branches in the capital. 

Of the total of 2,265 branches in operation till the first half of the current fiscal year, there are 626 branches of commercial banks, development banks and finance companies in Kathmandu alone that houses only 9.4 per cent of the total population.

One branch in the capital caters to 4,011 people while in the Hills and Tarai region one branch caters to 14,744 and 14,279 people, respectively. “There is a huge imbalance between the branches and the number of people they cater to,” accepted spokesperson for Nepal Rastra Bank (NRB) Bhaskar Mani Gyanwali. 

Kathmandu valley contributes 66.4 per cent of the total deposits collection nationwide. Likewise, of the total loans floated, 62 per cent is disbursed through branches within the valley. 

“It cannot be denied that banks being profit-motivated, they will only operate in areas that have the potential to maximise their earnings and since the valley is the financial hub of the country, financial institutions try to increase their footprint in the capital,” he pointed out. The growing number of banks and financial institutions and their branches do not translate to increased financial outreach as a majority of the branches are concentrated in relatively urban areas. 

NRB governor had recently admitted that among other things that the central bank needs to achieve, increasing access to finance is the most difficult. To curb the urban centric attitude of financial institutions and promote banking in the outskirts, NRB has issued a directive whereby financial institutions will be allowed to open a branch in the valley only after they open a branch outside Kathmandu and one in any of the 30 districts recognised by NRB as deprived of any banking facility. 

In addition, the Nepal Rastra Bank also introduced interest free loans to commercial and development banks to encourage them to open branches in designated remote areas where financial institutions are almost non existent. Since then 10 branches of different financial institutions have been opened in those areas.

“These approaches seem to be working as in recent times more financial institutions are opting to go to remote areas and provide banking services,” according to Gyanwali.

Source: THT