Kathmandu. Nepal Bankers’ Association (NBA) President Santosh Koirala has said that the upcoming monetary policy should bring necessary reforms in the regulatory system to make the banking sector and economy dynamic.

Speaking at a discussion programme on ‘Role of Monetary Policy in Accelerating Economic Growth’ organized by Society of Economic Journalists here today, Chairman Koirala said that the Bankers’ Association has submitted several policy recommendations to the Nepal Rastra Bank. He expressed hope that the upcoming monetary policy will address these suggestions.

He said that the public narrative that banks are overly profit-oriented is not in line with reality. Stating that the profit in the banking sector is often discussed as the banks publish their financial statements every quarter, he claimed that the average return of the banks is limited to around 7 percent.

“The banking sector is highly regulated. We have a deposit management portfolio of about Rs 80 trillion and a loan portfolio of about Rs 69 trillion. So, regulation is necessary, but some policy flexibility is also needed in view of the current economic situation,” he said.

Koirala pointed out the need to review the non-performing asset classification and provisioning system. According to him, the current provision of 5 per cent in one month, 15 per cent in three months, 50 per cent in six months and 100 per cent in a year has not given enough time to both banks and borrowers.

He urged the government to revise the provisions related to NPAs to provide ‘breathing space’ to both the borrowers and the banks. He also stressed on the need to complete the process of establishing an asset management company at the earliest. Stating that the government has set a deadline for the establishment of AMC by mid-January in the budget, he expressed the belief that this would help in managing the problematic debt.

He also said that the provisions related to base rate calculation, risk-based pricing, regulated fees and commissions also need to be reviewed. Stating that the current rules have limited the profitability of banks, he said that an environment should be created for banks to ensure minimum business returns.

Chairman Koirala also pointed out the need for reforms in the provisions related to capital redemption reserve and debenture redemption reserve. He gave the example of the Reserve Bank of India (RBI) not making redemption reserve mandatory on the debentures of commercial banks and suggested that arrangements should be made to facilitate the distribution of bonus shares in Nepal as well.

Likewise, flexibility in the arrangement related to LCR, interoperation of QR code, development of secondary market for government bonds, common platform for controlling digital frauds, centralized KYC system, customer information flow through omni-channel as an alternative to SMS and branch consolidation in the upcoming monetary policy.

Stating that the monetary policy should play a dynamic role in the economy to support the fiscal policy, he expressed the belief that the Nepal Rastra Bank would positively address the suggestions given by the Bankers’ Association.

At the end of the program, Chairman Koirala urged the Governor and Office-bearers of Nepal Rastra Bank to incorporate the suggestions presented by the Bankers’ Association in the upcoming monetary policy and thanked the Society of Economic Journalists for providing the opportunity for discussion.