“Banks and FIs can maintain their accounts in any BFI, but now onwards saving institutions are not allowed to pay interests on those accounts,” said Bhaskar Mani Gyawali, spokesperson of the NRB.[break]
Issuing a new directive on Tuesday, the central bank has asked the BFIs holding fixed accounts of other banks and FIs not to renew such interest receivable accounts once their maturity period ends. In case of other type of accounts, the central bank has asked them to close it by mid-January, 2012.
The central bank had earlier restricted commercial banks from maintaining such interest payable accounts at other banks. The new directive is an expansion of the same provision in the development banks and finance companies.
Officials said the central bank took such measures mainly after finding that financial institutions were largely re-depositing the deposits they mobilized from public in fixed deposits of BFIs instead of lending them. Referring to NRB statistics, they said FIs have deposited Rs 91 billion of their total deposits, which stand at over Rs 165 billion, in commercial banks alone. A large chunk of the remaining portion is also held at other development banks and finance companies, said a source, questioning “Whey are they mobilizing deposits if they don´t have to lend?”
Gyawali agreed with the source and said that the sole motive of the new directive was to force the BFIs to lend their deposits in the market.
“BFIs, going by their function, are expected to create assets by lending deposits in the market. But as they are not performing their basic function voluntarily, we decided to force them to resume core banking function,” Gyawali added.
Apart from that, the central bank said it took such a decision also to reduce the tendency of one financial institution saving huge amount of money in other FIs. “This tendency needed to be discouraged. Otherwise if a bank or financial institution is in trouble, other BFIs holding money in them will also be affected. The new provision will prevent this spiraling impact in case of crisis,” said the source.
Few bankers opined that the provision could result in withdrawal of deposits by FIs. Given that savings of FIs have largely helped banks to maintain deposits growth and liquidity, they said the new directive could hit banks.
Rajan Singh Bhandari, vice president of Nepal Bankers´ Association, however, ruled out such adverse impact. “Some of the players had expressed similar concerns when NRB imposed this rule on commercial banks. But nothing happened. I don´t think it will impact banks much,” he told Republica.
Meanwhile, NRB on Tuesday allowed the BFIs to reschedule loans of hydropower, cable car and other infrastructure related projects by provisioning just 1 percent in loan loss if such borrowers failed to repay loans on time.
“However, the BFIs must assure that such borrowers have been paying interests on time, the projects are not closed and there is a regular flow of fund in the projects,” said Gyawali.
If the borrowers meet these criteria, BFIs can reschedule or restructure their loans, categorizing them as good loans, reads the NRB directive.
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