Khatiwada urges banks to increase capital base

KATHMANDU, July 29 : Nepal Rastra Bank (NRB) Governor Yuba Raj Khatiwada has urged banks to increase their capital base so that the new measures introduced in the Monetary Policy 2014/15 like Credit Cash Ratio (CRR), CCD (credit to core-capital-cum-deposit) ratio and capital buffer do not hit their capital and credit flow capacity.

“The central bank has been asking the banks to maintain adequate capital base, either by floating rights shares or through other methods, so that the lack of capital do not hit their credit flow,” Khatiwada said, speaking at an interaction organized jointly by IBN Media and Research and Nepal Bankers Association (NBA) in the capital on Tuesday. “Instead of beating around the bush, you (bankers) should work seriously to increase your capital base.”

Speaking at the program, Nepal Bankers Association (NBA) President Rajan Singh Bhandari argued that certain provisions in budget speech and monetary policy were contradictory. “While the budget is of expansionary nature which lays emphasis on the economic growth, the monetary policy tries to curb the money supply citing inflation. It seems there is contradiction between the budget and monetary policy,” he added. He also said the new provision for CRR would hit the banks´ capacity to increase lending. “Unless the CRR is made liberal, it´s difficult for the banks to increase lending to industrial sector,” added Bhandari.

NRB has raised CRR for commercial banks and development banks to 6 percent and 5 percent, respectively, up from 5 percent and 4.5 percent. NRB raised CRR as part of its ´tightened´ monetary policy to avoid any pressure in the inflation rate and negative impact on financial stability from liquidity surplus in the banking system. CRR gives greater control to the central bank over money supply.

However, Khatiwada said argued that rise in CRR was a rollback to the previous fiscal year´s level. “We had CRR in 2013/14 when there was liquidity crunch in the financial sector. Now we have rolled it back to the previous level as there is liquidity surplus in the banking system,” he added. Khatiwada also said NRB would tighten the monetary policy if the credit growth exceeds the target.

NRB has projected that the private credit sector growth will increase by 18 percent in the 2014/15.

Source: Republica