NRB issues directive for civil servants

KATHMANDU, FEB 21:

Employees on the government payroll will not be allowed to hold a position at the board of any financial institution (FI) from now on.

Issuing a circular today, Nepal Rastra Bank (NRB) has forbidden incumbent employees of any government body, public enterprise or educational institution being run by the government to be a director of any licensed financial institution. However, the directive is not applicable for civil servants who are deputed to the board of a financial institution as a representative of the employing government body.

NRB has allowed existing directors at financial institutions who are also government employees to complete their tenure.

Likewise, the same circular has also defined Small and Medium Enterprises (SME) to promote their financing. Business entities with less than Rs five million capital and that own immovable assets worth less than Rs 50 million have been classified as SMEs. Moreover, only those enterprises which have a direct involvement of the entrepreneur in the day-to-day dealings will be considered as SME by financial institutions. Likewise, the business has to belong to either a productive or service sector.

With the increasing cases of banking fraud, the central bank has increased the capital charge on operational risk to be set aside by financial institutions. The directive has asked class ‘A’ financial institutions that follow Basel II framework to increase capital charge to five per cent for operational risk. “Where banks do not adopt sound practices for the management of operational risk, an additional capital charge of five per cent of gross income of the immediate previous financial year shall be levied for operational risks,” said the directive.

Likewise, class ‘B’ and ‘C’ financial institutions have to calculate five per cent of gross assets as risk weighted asset to cope with operational risk, from the third quarter. The amount set aside for operational risk has to be given 100 per cent weight while calculating risk.

Operational risk refers to risks arising from people, systems and processes through which a company operates. Fraud committed by bank employees, or losses arising from theft or hacking are also considered operational risks.

Source: THT