DOC issued the directives to the co-operatives after a government panel exhumed a number of activities that are against established principles of the banking. [break]
“We have issued directives to those co-operatives, asking them to furnish concrete financial and reforms plans to address the anomalies seen in the recent investigation within the next 15 days," Maheshwar Poudel, registrar of the DoC, told myrepublica.com on Monday.
DOC initiated on-site inspection of the co-operatives -- beginning with 10 big co-operatives of Kathmandu and Lalitpur -- on suspicion of violating co-operatives rules while both mobilizing deposits and lending, particularly in the realty sector.
Paudel also informed that DoC is soon initiating the next phase of study in around 10 more co-operatives operating in some other cities such as Narayanghat, Kavre, Pokhara and Biratnagar.
The recent study of the 10 saving and credit co-operatives unearthed that they alarmingly lacked transparency in their transactions, most of the co-operatives were controlled by family members, conducting huge banking transactions like commercial banks but in a ad-hoc basis without being regulated.
Most of the co-operatives were found engaged in distributing their membership only for the purpose of issuing loans, the report highlighted and exposed that some owners of co-operatives were found engaged in transferring borrowers´ collateral in private names instead of standard banking practice under which collaterals are owned by lending institutions.
Similarly, the study also found that the co-operatives are issuing loan without earmarking provisions of possible loan loss, not following specific criteria for issuing loans, lacking proper portfolio management and not calling annual general meeting regularly.
DoC issued first-ever financial directives few months back, asking the saving and credit co-operatives to limit their housing and real estate credit to 15 percent of their total loans portfolio by the end of this fiscal year, in a bid to regulate their lending.
With the enforcement of directives, the saving and credit co-operatives would have to reduce their real estate and housing loans to 10 percent and 15 percent respectively by mid-July 2010.
Of the total around 5,000 saving and credit co-operatives across the country, around 4,000 are concentrated in the capital alone. Over 15,000 co-operatives are operating across the country.
As per the conservative estimate, over Rs 70 billion of deposit has been mobilized by the saving and credit co-operatives and two-thirds of the amount have been invested in the housing and real estate sector.
prabhakar@myrepublica.com
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