DoC bars cooperatives from issuing loan to realty businesses

Published On: August 17, 2022 08:05 PM NPT By: Republica  | @RepublicaNepal

KATHMANDU, August 17: The Department of Cooperatives (DoC) has barred cooperatives from issuing loans in real estate businesses, citing soaring liquidity crisis and increasing number of cooperatives falling into problems due to their excessive exposure on realty investment.

Deputy Registrar of the DoC Tolraj Upadhyaya said the DoC instructed cooperatives not to invest in fixed property including land and housing for now. “We have asked cooperatives to invest in small businesses that yield quick returns,” he said.

According to Upadhyaya, the DoC has issued a circular also in the line of the monetary policy 2022/23, which has tightened banks and financial institutions to invest in land and housing. Amid ongoing liquidity crunch, the monetary policy has reduced the margin rate on land as collateral to up to 30 percent inside the Kathmandu Valley from 50 percent earlier.

The DoC said it has come up with the measures also after a number of cooperatives landed in financial trouble due to their over exposure on realty businesses. Whether it is with the recent case of Gautam Shree Multipurpose Cooperative or those with Civil Cooperative and Oriental Cooperative in the past, the cooperatives landed in similar problems mainly due to their lure to earn more profit through the investment in property businesses.

The DoC has cautioned the cooperatives also due to the slowdown in realty businesses in the aftermath of Nepal Rastra Bank’s decision to enforce monetary policy for the current fiscal year. According to the government record, the revenue collection from land transactions stood at mere Rs 2.73 billion during one month between mid-July and mid-August. In the previous month, the revenue collection from the sector was more than Rs 6 billion.

Meanwhile, the DoC has also directed cooperatives to adopt measures that can minimize their financial risks at present. To convey real time information to the depositors and members, to shut branches and service centers to reduce administrative expenses and to stop distributing dividends to staff and members by the cooperatives which are facing operating loss, are among the directives issued by the DoC to cooperatives across the country.


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