Kathmandu. KATHMANDU: Nepal Bankers’ Association (NBA) has furnished 21-point recommendations to the Nepal Rastra Bank (NRB) for the monetary policy for the fiscal year 2083/84.

The association has made various suggestions related to reducing the limit of loans to the poor to digital banking and capital market reforms.

The 21-point recommendations of the association are as follows

1. Since there is no provision to convert security letters into cash, necessary initiatives should be taken to establish a secondary market.

2. Necessary initiatives should be taken to amend the Bank and Financial Institutions Act to make legal provisions allowing banks to lease out non-banking assets.

3. Since there are sometimes confusions in the understanding and implementation of the policies and directives issued by the Nepal Rastra Bank, a mechanism should be established to provide clarity on the queries and dilemmas raised in the course of the implementation of the policies and directives in order to make inter-departmental coordination effective.

4. Point No. Although Article 76 states that the existing loan classification and loan loss provisions will be studied and reviewed as per the need, there has been no policy change so far.

5. In order to make the base rate of banks and financial institutions realistic, point no. 78 and point no. 78 of the Monetary Policy for the fiscal year 2082/83. Although it was mentioned in Section 99 that the method of calculating the base rate of banks and financial institutions would be reviewed/improved, it has not been done so far.

6. Unified directive issued by Nepal Rastra Bank No. According to Clause 1 of Article 17, class ‘A’, ‘B’ and ‘C’ financial institutions are required to invest at least 5 percent of their total loan in the poor areas.

Various statistics show that although banks and financial institutions have been investing in microfinance institutions to ensure credit flow to the poor class, there has been a huge increase in the demand and size of loans to the poor class and there is no demand in the market accordingly. Similarly, the budget statement has also targeted to provide loans to the poor and small farmers through the Small Farmers Development Micro Finance Institution. Therefore, the loan limit for the poor should be reduced from 5 percent to 4 percent.

7. Unified directive issued by Nepal Rastra Bank No. Point No. 17. 12. The priority of the country’s priority is health and education should also be included in the areas specified under Ward No. 12.

8. The demand for loans has not increased as expected even when the interest rate is at a historic low. At present, even though the risk of the borrower has changed, the banks have not been able to adjust the risk premium, which has created a situation contrary to the principle of market risk. Therefore, the premium rate should be changed according to the risk-base pricing based on the risk profile of the borrower.

In addition, the premium rate should be adjusted on the basis of market liquidity and risk of the borrower as stipulated in the agreement with the borrower. In the current situation of excess liquidity, the borrower will get the direct benefit of this arrangement.

9. We have felt that there is no open competition in the market due to the provision of various services and fees fixed by the Nepal Rastra Bank and the provision of providing some banking services without any charge. The bank itself is bearing the cost of providing these various services. Therefore, in order to make the banks more competitive and to encourage the banks to innovate and new technology, the caps and rates related to service charges should be left to the open market.

10. Provision should be made to create a payment fund for the debentures issued for capital adequacy and to issue bonus shares equivalent to the reserve by using the income kept without the obligation to allocate the amount for the payment fund.

11. Private equity funds and venture capital funds approved by the Securities Board of India (SEBON) are not required to be listed as per the prevailing law and can be invested only up to 10 percent of the fund size of the institution to be invested. Arrangements should be made that are not necessary.

12. The Unified Directive issued by the Nepal Rastra Bank (NRB) According to point No. 5 (a) (1) of Clause 14, the non-performing loan ratio should be less than 5 percent for the banks to establish branches abroad and the total risk-weighted assets should not add more than two percent to the overall risk management under the supervisory review.

13. Although the limit for non-deliverable forward (NDF) transactions has been increased to 30% of the primary capital, banks are not able to fully utilize this facility due to the current limit of 30% of NET Open Position.

14. Initiatives should be taken to create a common digital platform for customs process, documents and logistics management related to import and export by involving the main bodies involved in import and export (Nepal Rastra Bank, customs office, banks, etc.). It will also help bring ease and transparency in monitoring and reporting on import and export.

15. With the increasing use of digital platforms, instead of making SMS information mandatory for customers using digital banking, it would be more effective to provide in-app information for transactions done through omni channel (e.g. mobile banking/internet banking).

16. Although it has been a few years since Nepal Rastra Bank has issued directives for QR inter-linkage, there is still no inter-linkage in QR, so customers have to use different operators for QR usage.

17. In order to protect customers from digital scams and frauds caused by the increasing use of digital channels, necessary initiatives should be taken to create a common platform to inform the police and concerned banks immediately.

18. Although point no. 103 of the Monetary Policy of the fiscal year 2080/81 had announced to build and implement the central customer identification system, it has not been completed yet. Under the appropriate regulatory framework, a system should be established to record customer identification details and due diligence details in a centralized system (central KYC) and necessary arrangements should be made to update the customer details according to the details of the system.

19. Directive of the Rastra Bank No. According to Clause 2 (1) of Section 14, the bank can close its branches under the metropolis without prior approval of the Rastra Bank. It seems appropriate to extend this system to sub-metropolitan cities and municipalities with more branches.

20. Subject to the Point No. 3 (3) of the Unified Directive issued by the Nepal Rastra Bank to the banks and financial institutions, the provision of closing the accounts with zero reserves for 10 years by publishing a public notice should be amended and the period for closing the accounts as mentioned above should be reduced to five years.

In addition, if any customer wants to close his account due to various reasons such as business, foreign employment, foreign study, and even outside the country, arrangements should be made to close his account easily through digital (mobile-internet banking).

21. In order to make the programs being carried out by the banks under the Corporate Social Responsibility (CSR) in a more effective way, provisions should be made to include the financial literacy programs to be carried out by the banks and the associations of the banks under the CSR within the scope of the order issued by the Hon’ble Supreme Court and the guidelines on Corporate Social Responsibility issued by the Nepal Rastra Bank.