Merger is the demand of time: Governor

Kathmandu, June 14

Stakeholders have said that the central bank should continue its policy for the merger of the banks and financial institutions (BFIs).

Governor of the Nepal Rastra Bank (NRB) Dr. Chiranjibi Nepal said that to meet the high growth trajectory of the country in the last couple of years, the financial base of the banks must be enhances.

"The capital base of the BFIs was increased to make them stronger and able to absorb small financial risks. At the same time, to build and maintain public trust on BFIs, the central bank must intervene in the financial market," he said at a discussion on 'Monetary Policy for the Fiscal Year 2019/20' organised by the Management Association of Nepal (MAN).

 Dr. Nepal also stated that Nepali banks and financial institutions had failed to bring in loan from foreign institutions due to their poor international connections.

Former Vice-Chairman of National Planning Commission and former Governor of NRB Deependra Bahadur Kshetry said that the central bank had challenges in containing the inflation rate due to the increased salary, capital expenditure and increased remittance flow.

He also suggested the NRB to have better capacity for off-sight and on-sight monitoring of the financial market.

"Let's leave the interest rate to the market and increase the supervision," he suggested. 

President of Nepal Bankers' Association Gyanendra Dhungana said that the BFIs had not been able to collect sufficient deposits from the market against their loan mobilisation.

"Merger and acquisition is the demand of time. We still have more BFIs than the size of economy," he said. "Reduced number of banks does not impact on financial access and inclusion as the larger institutions can expand their services and provide efficient services."

President of Confederation of Nepalese Industries (CNI) Satish Kumar More said that the BFIs had become more profit-oriented than service-oriented.

Economist Dr. Chandra Mani Adhikari stated that the monetary policy should support business growth and employment generation. Youth with entrepreneurship and business ideas must be provided with the required funds to start and promote their ventures.

President of Nepal Financial Institution Association Saroj Kaji Tuladhar said that the Core Capital to Deposit (CCD) should be based on Current Account and Saving Account (CASA). "BFIs should sign on the financial closure of investment projects only after ensuring that they have enough liquidity to finance it. There has been a trend that banks signed financial closure but failed to supply money afterwards," he said.

General Secretary of Development Banker's Association Manoj Kumar Gyawali called for greater awareness regarding operational and credit risks.

He also said that merger and acquisition had not increased the operating efficiency as the number of employees, branches and other operation costs had not been cut down significantly.

Published in The Rising Nepal daily on 15 June 2015.