KATHMANDU, Jan 15: Nepal Rastra Bank (NRB) is set to implement new regulations for cooperatives to mobilize savings and credit exceeding Rs 250 million annually.
The NRB, in this regard, has prepared a draft of the guidelines, titled ‘Directives and Standards for Savings and Credit Cooperatives,’ and has called for public feedback by January-end.
The proposed directive seeks to cover various provisions, including financial resource mobilization, loan limits, capital fund regulations, and protection measures implemented by cooperatives for their members. Provided the directive gets approval in its current form, cooperatives will face new restrictions on the amount they can consider for deposit collection.
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Depending on their scope of operation, cooperatives will be permitted to collect deposits within a limit of Rs 1 million to up to Rs 5 million per person. Existing savings above the given threshold must be adjusted within two years from the date of implementation of the directive.
Stakeholders have been demanding for a long time for the country’s central bank to take lead in regulating the cooperatives sector, which the NRB has been refusing to take the charge. The central bank has finally come to a consensus to draft and enforce laws for the cooperatives after a large number of cooperatives landed in financial problems.
In the proposed directive, cooperatives will also need to disclose the source of savings exceeding Rs 1 million and will be required to maintain minimum liquid assets. In terms of loans, cooperatives can lend up to five times a member’s savings without collateral, subject to a guarantee from two other members. A 15 percent loan limit per member based on primary capital has been set.
For large-scale cooperatives, at least 50 percent of the total loans must be directed towards productive sectors such as agriculture, industry, and business. Furthermore, loans can only be provided against collateral from the borrower or immediate family members. Cooperatives will also have to classify loans as active or non-performing, with provisions ranging from 1 percent to 100% percent for non-performing loans.
Additionally, the NRB will set the interest rate spread at a maximum of 6 percent between savings and loans. Cooperatives must implement interest rates as determined by their boards, but monthly adjustments based on the NRB’s reference rate are required. The guidelines also prohibit family members from holding multiple positions in the same cooperative and limit directors to two consecutive terms.
The new regulations aim to bring greater accountability, transparency, and risk management to the cooperative sector. It however envisions allowing cooperatives to take loans from the banks. The cooperatives can take credit of up to five percent of their total assets or cent percent of the capital fund, whichever is less.
