Speaking at an interaction on 'Banking and Financial Architecture in the New Constitution of Nepal' organized by Nepal Bankers Association (NBA), National Banking Institute (NBI) and Society of Economic Journalists-Nepal (SEJON) on Tuesday, they demanded that the roles and responsibilities of three tiers of the federal structure be clearly defined in the constitution to avoid any financial aberration.Opposing the provision to list central regulatory bank under the domain of federal government and BFIs under provincial government, Nepal Rastra Bank Governor Chiranjibi Nepal said such arrangement is the recipe for collapse of the financial system.
Annex 4 of the draft constitution related to Article 61 Clause 1 has listed central regulatory bank along with financial policy, monetary policy, foreign aid and debt under the domain of federal government. However, Annex 5 related to Article 61 Clause 2 puts BFIs, cooperatives and foreign aid and grants received on the consent of the federal government under the provincial government.
"We are surprised to see central bank under the federal government and BFIs under the provincial government. There should be single regulator to regulate the banking system. Putting BFIs under the provincial government's domain will create another layer of regulator. The attempt to divide the regulator does not bode well to the banking and financial system of the country," Nepal said.
"We (NRB) have already put our written suggestion and campaigning to bring the BFIs under the ambit of the central bank. The provincial government does not regulate the money market and the universal truth is that the BFIs are regulated only by the central bank."
Likewise, Shovan Dev Pant, chairman of NBI, wondered whether there will be separate regulation and supervision of BFIs by the provincial government. "There are questions about added taxes, fees, charges and penalties from the federal government. Should there be licensing, regulation and supervision norms enforced by the provincial government and how such policies will be coherent with central bank?" Pant, who is also the CEO of Lumbini Bank, questioned. "As provincial/local government may not be acquainted with the global norms and best practices about regulation, supervision and governance of banking system; the apprehension about the future banking environment in the federal system is natural and spontaneous."
Former finance secretary Rameshore Khanal, however, opined that there would be no problem if small 'D' class financial institutions are included under the domain of provincial government by not compromising on fundamental principle of regulation. "Most of the people do not have access to financial services yet which means that they also do not have access to the capital. Thus, allowing small institutions operating under the ambit of local government for the flow of finance will do no harm," he added.
Similarly, former NRB Governor Yubaraj Khatiwada said that the regulatory duties are devolved to the federal states. "In the federal set up, local or the provincial government will claim stake in the resources. However, our effort should be to honor such claim and give the local government a leeway without derailing the regulatory, financial and monetary regime," he added.
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