NRB takes aim at banks malpractices in interest rate; brings rafts of corrective and punitive measures; what is expected impact to stock market now?

Nepal Rastra Bank, the banking regulator has brought couple of changes to reform to the way the banks have been collecting deposits and disbursing credit facilities in recent days. The latest measures have been seen as corrective measures adopted by the apex bank in an immediate aftermath of the conflict of interest rate which had grappled entire banking industry of the nation for several days. Daily monitoring of CCD ratio First, it is the change in calculation method of CCD ratio which the bank has changed into daily evaluation reforming it from the earlier provision. Issuing the directives on Tuesday, the NRB has instructed the banks and financial institutions not to breach the prescribed CCD ratio 80;20 which the central bank has informed to monitor in a daily basis. The apex bank has informed that necessary punitive actions would be taken against those institutions that breach the prescribed ratio. According to the central bank, the daily CCD ratio would be monitored now onwards taking the start of the month as the beginning point and the end day of the month as the ending point barring the days of public holidays. Later these daily monitored figures would be taken to obtain the monthly average to determine if the class A, B and C financial institutions have actually stuck to the required CCD ratio limitation. In case of any breach of the prescribed CCD ratio, it has been informed that necessary punitive actions are well on the table against those commercial banks, development banks and finance companies as per the provisions of Nepal Rastra Bank Act 2058. Severe punishments for breaching spread rate of more than 5% After multiple incidents that dented the interests of investors following the haphazard and rapid changes in the interest rates for deposits and credits, Nepal Rastra Bank has reportedly been making arrangements to strictly enforce the spread rate of 5% from the fourth month of the upcoming Fiscal Year. This provision will strictly prohibit the banks and financial institutions to make reckless changes to their interest rates that would bring the difference between average interest rates in deposits and credits by more than 5%. The banking authority has made it clear that it is serious about enforcing this new regulation by levying strict punishments over those institutions that are found to breach this instruction. The punitive actions would range from prohibiting these institutions to open new branches other than the rural local levels, discontinuing the re-credit facilities which most of these institutions are receiving in form of disbursing credit facilities to earthquake survivors and even by restricting such institutions to distribute their bonus and dividends.