The banking sector regulator´s comment comes a day after Rajan Singh Bhandari, president of the Nepal Bankers´ Association, an umbrella body of commercial banks, told Republica in an interview that the central bank should be clear on whether banks could donate funds to political parties.[break]
Bhandari, also the CEO of Citizens Bank International, was expressing his views on donation drive launched by few political parties several weeks ago during which millions of rupees were demanded from commercial banks in the pretext of holding general conventions.
“Maintaining relationship with political parties, supporting their activities and donating funds to them by coming under their influence are acts that do not fall under the jurisdiction of banking,” Bhaskar Mani Gyawali, spokesperson of Nepal Rastra Bank, told Republica on Monday. “However, banks and financial institutions are free to engage in social welfare activities and fulfill their corporate responsibilities.”
Bankers have long tried to convince political parties that the money in their vaults is borrowed from the public and that they are only working as custodians of their funds. This money, which they purchase from the public -- in the form of deposits -- at a lower rate, is later sold to borrowers, in the form of loans, at a higher rate. This is how banking institutions generate profit. But if these institutions start donating part of their earnings, they will have to compromise on returns they extend to shareholders, who have invested their money in these institutions.
Since banking institutions do not want to infuriate shareholders, which could trigger mass selling of shares and cause their stock prices to drop, those that donate funds to political parties will make every attempt to retain the profit level by extending lower returns to depositors, Gyawali said.
“This will eventually hurt the interest of depositors, who actually are source of funds for banking institutions and the real owners of banks and financial institutions,” Gyawali further said. “Since Nepal Rastra Bank´s primary duty is to protect the interest of depositors, we can never allow such things to happen. Instead, we encourage banks and financial institutions to think of ways to maximize returns for depositors.
“Besides, members of political parties themselves must be depositors at banking institutions, so by demanding donations from banks and financial institutions, they are doing injustice not only to other depositors, but to themselves as well.”
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