April 21, 2019 09:03 AM NPT
KATHMANDU, April 21: Commercial banks are yet to expand their reach to 40 local units as of mid-March. Though the government has been pushing them to have at least one branch in each local unit, banking institutions have been able to show their presence in only 713 out of 753 local units.
As the data is one month old from the “Current macroeconomic and financial situation of Nepal based on eight months' data of the current Fiscal Year 2018/19," bankers say that there are only a few local units that are still devoid of a banking institution.
"All banks are making efforts to expand to local levels in line with the plans that they have submitted to the central bank. They have opened their branch offices in most of the local units. There are only over two dozen local units where banks are yet to reach," said a banker.
"The local units where banks are yet to reach are those where there is lack of even basic infrastructure such as internet," he added.
He also said that the geographical location has also become a constraint for banks to reach in some remote local units.
The struggle of commercial banks to open their branches in over two dozen local units is likely to hit the government's plan to have at least one commercial bank branch in all local units.
The central bank has also been offering various facilities and incentives to the commercial banks to open branches in the remote areas as part of its efforts to increase financial access across the country.
Banks are entitled to get interest-free loans of Rs 10 million per branch for one year to establish branches in designated local levels in order to facilitate government transactions.
The NRB has also made commitment to make it mandatory that all government transactions at rural municipalities must be done through banks. The central bank has even decided to bar any other new bank from opening its branch in the local unit for at least two years. Based on this provision, the banks will enjoy their monopoly in the local units where they reach first.
The NRB also provides a relaxation to banks whereby they are not required to maintain the cash reserve ratio and statutory liquidity ratio based on the deposit liabilities of those branches for the next three years.
The government had first announced its policy through the budget speech of Fiscal Year 2017/18 that each local unit will have a commercial bank branch.
In line with the government announcement, the central bank had issued a circular last fiscal year requiring banks to open their branches by mid-July in accordance to their own plan.
The central bank had even warned that it would penalize those who fail to open their branch office as per their plan submitted to the NRB. However, the NRB has not taken any action against those banks yet.