NRB steps to separate bankers and businessmen in three years: Guv

KATHMANDU, APR 28 -

Nepal Rastra Bank (NRB) Governor Yubaraj Khatiwada said on Saturday the central bank will take measures to ensure the separation of bankers and businessmen within the next three years.

Stating that several anomalies have appeared in the banking sector due to businessmen promoting banks, the governor said the central bank will discourage businessmen’s involvement in the sector by taking steps such as barring them from taking loans for companies in which they have a majority stake.

The NRB has already barred directors, chief executives and managerial-level officers of banks and financial institutions (BFIs) from taking any types of loans on ‘personal capacity’ except for education, hire purchase, home loans and loans for household purposes.

“The separation may not be possible in the next year. It will take at least the next three years,” Khatiwada said, addressing a programme to mark the central bank’s 58th anniversary here. He also said the NRB would not issue new licenses for BFIs promoted by businessmen. Currently, central bank has imposed a moratorium on new banking licence.

NRB officials say the involvement of businessmen in banks as directors has promoted insider lending, increased the tendency of borrowing loans from each others’ banks in collusion and sometimes preventing the extension loans to businessmen challenging the interest of directors concerned. During the ‘National Directors Conference’ on April 19, Khatiwada had advised bank directors “either to become a banker or a businessman”, saying their dual role has been “self-contradictory”. He had said the directors from business background first complain about liquidity crunch and say interest rates cannot be slashed, but the same directors, presenting themselves as businessmen the next day, complain about higher interest rates.

Given the base rate already implemented in commercial banks, the governor on Saturday also said the central bank will also implement the base rate in development banks, fiance companies and micro-finance institutions gradually.

He said the base rate has brought transparency in interest rates which enabled borrowers to take loans based on that rate. The base rate is the maximum cost of the bank. Currently it is 9.5 percent on average, according to the NRB.

Talking about the country’s economic situation, Khatiwada termed the situation “mixed”.  “Trade deficit has increased alarmingly, but we still have a current account surplus,” he said. As one of the one of the main duties of the central bank is to control inflation, the governor said the NRB’s sole effort will not help control inflation as many other factors influence price. “Inflation is expected to remain close to double digits,” he said. “Declining inflation in the neighbour country (India) in recent days is expected to help lower inflation here too.”

Khatiwada informed that NRB has been closely watching monetary expansion which is one of the factors determining inflation. The governor also revealed the pathetic condition of development expenditure, saying the government’s treasury has Rs 56.95 billion unspent. According to the NRB, the huge saving continued due to the government’s failure to spend the capital budget.

Source: The Kathmandu Post