NRB lets BFIs to continue accounts in other banks

KATHMANDU, JAN 12 -

Following demands by finance companies, Nepal Rastra Bank on Wednesday allowed development banks and finance companies to continue their interest-earning deposits in other banks and financial institutions until mid-July 2012, irrespective of their location.

Although the central bank had first set the deadline of closing such accounts by mid-January, it had allowed the development banks and finance companies whose head offices are outside the Kathmandu valley to close their interest-earning accounts in commercial banks within mid-July 2012. However, finance companies had been demanding that all of them should be allowed to continue the accounts until the end of the current fiscal year, irrespective of their location and the category of the accounts.

They have been saying that they need time to manage funds at a time when they are facing problems due to public trust deficit after some finance companies landed in trouble.

Rajendra Man Shakya, the president of Finance Companies’ Association, said they welcome the central bank’s response to their call. He added that the move will help them manage their funds properly.

NRB had introduced the provision in a bid to maintain financial discipline, saying that such deposit accounts created anomalies in the system. BFIs had been using such deposits to manage their credit to deposit ratio which created anomalies in the system, according to the NRB. Central bank officials said the measure had been introduced to stop the practice of depositing money in other institutions and taking loans.

The central bank has also allowed the chief executive officer of banks and financial institutions, to get up to five percent more than the second man if the second man’s salary and allowance is higher than that of the CEO.

Source: Kantipur