Senior NRB officials, however, also made it clear that only the solvent and prudent bank and financial institutions (BFIs) will enjoy the central bank´s refinance support. Institutions that are technically insolvent and facing grave corporate governance problems instead would face actions.[break]
"We have opened numerous windows to inject liquidity in the cash-strapped institutions. This will help their concerns," said Khatiwada, adding that the problem seen in the financial system is not unmanageable. He attributed the current liquidity crunch to slowdown in real estate business, where BFIs have invested in massive scale, and high dependence on institutional depositors.
"The BFIs must make their deposit mass-based and diversify their lending in quality portfolios."
Khatiwada also said the number of financial institutions in the country was unnecessarily high and that the current pain seen in the sector was a result of pruning works it has initiated lately.
“There is a strong need to consolidate. We must trim the trees and uproot unnecessary plants if we want to keep our garden clean," said Khatiwada.
Shovan Dev Pant, vice president of Nepal Bankers´ Association, said that crisis has crept into the financial system because depositors today are worried more about safety of their money. But he strongly asked the central bank not to pledge ´last resort´ loans to institutions with serious corporate governance problems. "Burning taxpayers´ money to cover embezzlement (by promoters) will be a big blunder," he added.
Pant said the epicenter of tremor that has jolted the country´s financial system lies on real estate loans -- a sector where the BFIs have invested some Rs 110 billion.
“The fate of Nepal´s financial sector will depend on how the real estate sector will behave,” Pant opined, and the central bank to be prepared for handling the credit risks the current gloom seen in real estate market will culminate in over the next few months.
Chief executives of development banks and finance companies, on the other hand, pleaded the central bank to save the institutions even if their promoters have done wrong.
"In case of institutions hit by governance problems, we request the NRB to instantly replace wrongdoing promoters and chief executives and appoint competent professionals,” said Ram Shanta Shrestha, former president of Nepal Finance Companies´ Association at an interaction between bankers and economic journalists on Tuesday.
“If the NRB did not save the institutions, how will the public show confidence in the financial system?" he wondered.
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