Out of valley BFIs to be allowed to buy securities as non-bidders

KATHMANDU, DEC 17 -

Nepal Rastra Bank (NRB) plans to make it convenient for development banks, finance companies and financial institutions outside the Kathmandu valley to subscribe to government securities by allowing them to come forward as non-bidders.

As development banks, finance companies and financial institutions from outside the valley cannot compete with commercial banks with their vast resources, the central bank has moved to enable them to subscribe to government securities with this step.

According to public debt bylaws, banks and financial institutions are required to compete to subscribe to government securities. “We are working on revising the bylaws to allow B and C class financial institutions to subscribe to government securities as non-bidders,” said a senior NRB official.

As of mid-November, commercial banks owned 74 percent of the treasury bills while development banks owned 1.51 percent and finance companies 0.62 percent, according to NRB. The central bank itself owned 22.86 percent of the treasury bills.

Similarly, commercial banks hold 44.40 percent of the development bonds while development banks hold 1.82 percent and finance companies 3.36 percent. Insurance companies and the Employees Provident Fund are other large buyers of development bonds.

The figures point to a lopsided ownership of government securities with development banks and finance companies being largely left out of the action.

The central bank is considering ways for B and C class FIs and FIs outside the valley to invest their surplus funds after it prevented them from depositing them in commercial banks.

“We decided to enable them to subscribe to government securities without competition with commercial banks so that they can manage their surplus deposits properly,” said the NRB official.

The monetary policy for the current fiscal year has required banks and financial institutions to close their interest earning accounts in other BFIs by mid-January 2012. Recently, the central bank extended the deadline for BFIs outside the valley to close such accounts by mid-July 2012.

The central bank has ordered them to close their interest earning accounts in a bid to discourage the tendency of earning profits by depositing money instead of investing it in productive sectors.

Source: Kantipur