Banks fail to reach 23 local units due to lack of basic infrastructure

Published On: June 30, 2019 08:18 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, June 30: Though it has been over two years since the country went into a federal structure, 23 local units are still devoid of a bank branch. 

According to the Nepal Rastra Bank (NRB), commercial banks have opened their branch offices in only 730 local units as of now, out of the total 753 units.

“While commercial banks have not been able to open their branch offices in 23 local units, the expansion of banks can be said to be satisfactory,” Laxmi Prapanna Niroula, executive director at the NRB, told Republica. 

“However, we are urging banks to set up their branches in these unbanked local units as soon as possible,” he added.

As each of these local governments has their own consolidated fund, a branch of commercial bank is needed to operate such fund. In the absence of the bank branch, local unit officials have to travel to far-away district headquarters for bank-related works.  

Upon the request of the NRB, commercial banks, through the Nepal Bankers' Association (NBA), have agreed on which of their members will open branches in those local units. 

While they had divided the local units for establishing branches two years ago, bankers say that they are facing various roadblocks that have delayed the opening of their branches in nearly two dozen local units. 

Among others, they point to the lack of basic infrastructure to open a bank branch. 

"All of these local units where banks have not reached so far lack basic infrastructure for a bank," said Ashok Sherchan, executive member of the NBA. He said factors like electricity, internet connectivity, and road access were prerequisites for establishing a bank branch. 

Sherchan, who is also the CEO of Prabhu Bank Ltd, cited the problem faced by his own bank which has not been able to open its branches in two local units — Shey Phoksundo Rural Municipality and Kharpu Nath Rural Municipality. According to him, the bank has not been able to find a building suitable to open the branch in Shey Phoksundo while the lack of road access has become problem to ferry equipment and goods to Kharpu Nath. 

“Shey Phoksundo is constructing its official building which will provide space for office to police, our bank, and other offices. We will open our branch once it is built. Otherwise, there is no house in the rural municipality that is suitable for a bank branch,” Sherchen said. 

NRB officials said they were aware of the challenges for opening bank branches in some rural municipalities. 

“We have communicated these problems to the government which is also working to address them. Also, local governments have also shown their commitment to help banks in setting up their branches,” said Niroula. 

The central bank is offering various incentives and facilities to encourage banks to open their branch in line with the government’s policy to have presence of commercial bank in each local unit.

The NRB also provides interest-free loan of Rs 10 million per branch for one year to those banks establishing branches in the designated local levels. 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.

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