WB-IMF team suggests NRB to monitor big co-ops

KATHMANDU, FEB 20 -

The Financial Sector Assessment Team of the World Bank (WB) and International Monetary Fund (IMF) has asked the Nepal Rastra Bank (NRB) to supervise big cooperatives , stating that the capacity of the Department of Cooperatives is limited to regulate them.

During an interaction with central bank officials this week, the team suggested the central bank to keep a provision in the Nepal Rastra Bank Act and Bank and Financial Institution Act (BAFIA), enabling the central bank to regulate big cooperatives .

NRB Deputy Governor Gopal Prasad Kafle said the joint team suggested cooperatives could be categorised under the class “D” financial institutions to regulate them. “The team also stressed on stronger legal provisions to regulate the entire cooperatives sector,” he said. The team under the Financial Sector Assessment Programme (FSAP) collected information about the financial sector from different stakeholders, including regulators and financial institutions, and presented their initial assessment to the central bank.

The two global institutions are conducting an assessment of Nepal’s financial sector for the first time as per the joint request of the government and the NRB. After collecting the necessary information, the team has departed and they are expected to produce a report in June or July.

Amid reports about cooperatives cheating thousands of depositors, the team stressed on the need for better regulating the cooperatives sector, where Rs 133.82 billion of general public money has been deposited. A government-formed commission to investigate the troubled cooperative has received complaints against 70 cooperatives where an estimated Rs 8 billion has been deposited. Many cooperatives failed to pay back deposits due to financial embezzlement by promoters. There are a total of 29,526 cooperatives (12,916 saving and credit cooperatives ) as of last fiscal year. They collect deposits and provide credit like the NRB-regulated BFIs.

Meanwhile, the joint WB-IMF team also suggested making a provision of “parliamentary hearing system” for the appointment of central bank governor, deputy governor and board members, according to Kafle.

Currently, top officials of the central bank, including governor and deputy governor, are appointed by the Cabinet upon the recommendation of a committee headed by the finance minister.

The team also suggested making the central bank powerful to liquidate troubled banks and financial institutions (BFIs).

The NRB has also proposed a new NRB Act that enables the central bank to liquidate troubled BFIs, while legal liquidation would only be carried out by the court. Even after the NRB decided to send financial institutions like Nepal Development Bank and Samjhana Finance to liquidation long ago, their liquidation has not been complete yet.

Currently, the central bank is doing homework to update both the NRB Act and BAFIA as per the changed context. Under the programme, the IMF will examine the status of liquidity support facilities, resolution regime for troubled banks, legal and institutional arrangement for protection of depositors and status of inter-agency coordination in the event of systemic crisis.

The programme will also look into supervisory oversight, corporate governance, risk management and internal controls, preventive and corrective actions taken by the regulator and enforcement status.

The World Bank, on the other hand, will study financial development, under which it will look into the country’s financial development compared to peer countries. It will identify deficiencies in financial infrastructure, mushrooming growth of saving and credit cooperatives and policy challenges such as regulating them through credible oversight arrangement.

Source:The Kathmandu  Post