NRB fixes mid-July deadline for commercial banks

KATHMANDU, OCT 11 -

Nepal Rastra Bank on Thursday fixed a mid-July 2014 deadline for commercial banks to bring down their interest spread rate to 5 percent as per the monetary policy for the current fiscal year.

The central bank has also directed all A, B and C class banks and financial institutions (BFIs) to regularly calculate the spread rate as per the NRB -fixed formula and publish it in their quarterly financial report starting from mid-January 2014. Spread rate is the difference between average interest rate of deposit and credit.

NRB spokesperson Bhaskarmani Gnawali said the spread rate was fixed as the BFIs failed to address the concerns over higher spread rate by the stakeholders and central bank. Despite the monetary policy stipulating for the cut, spread rate has increased, shows the NRB statistics. In mid-July, spread rate of BFIs stood at 6.84 percent which surged to 7.01 percent, according to the NRB . Gnawali said the central bank was compelled to take the decision after the banking sector failed to honour the general sentiment.

The NRB officials have long been asking the BFIs to bring down the spread rate terming it too high. On the other hand, bankers have been complaining that the central bank’s formula regarding spread rate is misguided.

The NRB has also fixed a deadline for the banks to bring down the share of institutional deposits to 60 percent at the end of the current fiscal year. The central bank’s took such a decision as institutional deposits increased liquidity related risks in the banking sector due to large scale withdrawal on some occasions. According to Gnawali, an average share of the institutional deposit in Nepal’s banking system is around 50 percent.

The central bank also told the BFIs that they could accept institutional deposits up to just 20 percent of total deposits from a single institution.

Deposits by the government and the government-owned agencies, funds being operated under such agencies and public limited companies are institutional deposits.

The BFIs have also been instructed to incorporate operation risk under the list of risks to be monitored. Currently, they have to monitor risk from the perspective of liquidity, interest rate, foreign exchange and loan and advances.

They have been told to develop efficient internal control and information systems. The internal auditor will have to mention whether adequate measures have been taken in order to manage operation risks in each branch and department in their internal audit report.

The latest NRB directive requires the commercial banks to get the existing information system audited and submit the report within mid-January 2014.

Source: The Kathmandu Post