Governor indicates toward increasing paid-up capital, again

Kathmandu, June 10: Governor of the Nepal Rastra Bank (NRB) Dr. Chiranjibi Nepal has said that the current paid-up capital of commercial banks, Rs. 8 billion, is little as compared to the size of the national economy.

According to government’s projection the size of country’s economy would reach Rs. 3007 billion.

About a decade ago the banks were mobilising about Rs. 250 billion deposits which would reached Rs. 2556 in the current fiscal year 2017/18. It’s more than 10 times growth since then but the paid up capital of ‘A’ class commercial banks has reached Rs. 8 billion, a growth of just four times, said Dr. Nepal speaking at a discussion programme on the Monetary Policy for the coming fiscal year 2018/19.

Though he didn’t say there would be an increment in the capital of the banks, he was indicating towards to the need to do so.

In the Monetary Policy of the current fiscal year, the governor had said that all the banks and financial institutions (BFIs) must meet the paid-up capital provision, and if any company was unable to meet the criteria within nine months of the current fiscal year but had a plausible plan for the capital increment, their Audit and Financial Reports of current FY 2016/17 should clearly state it in their ‘Notes to Account’.  

Governor Dr. Nepal criticized the banks for not being able to adopt the recent technological changes. “The NRB wanted to introduce the mobile banking much before than any South Asian countries implemented it but the BFIs were reluctant.”

He said that the banks in Nepal had not become fully professional and were running in ‘Shahuji and Munimji’ (lender-agent) style.

According to him, agricultural lending has been increasing gradually. Three years ago only three individual obtained the agricultural loan which has expanded to more than 7,000 people and Rs. 8 billion plus lending.

“I know this is still much below the NRB set ceiling but it was due to the lack of demand in the market. The agricultural lending will go up as the demand goes up,” he said.

The BFIs must invest 25 per cent of their lending in the priority sectors – agriculture, hydroelectricity and infrastructure.

He said that the new monetary policy will be focused on supporting the budget of the coming fiscal years in meeting the growth target, creating financial stability and increasing economic activities.

Former Governor of the NRB and Vice-Chairman of the National Planning Commission Deependra Bahadur Kshetry said that the large size of budget will create challenge for inflation control.

“I think the size of total budget including the local bodies will be about Rs. 1800 billion. Such a large budget will create a huge challenge to the central bank to contain inflation,” he said.

Former Finance Minister Madhukar SJB Rana stated that the monetary policy should have clear opinion on various government financial undertakings.

Economist Anal Raj Bhattarai asked the NRB to reduce the cash reserve ratio in the BFIs.

“What is the logic of separating about Rs. 700 billion for cash reserve in the economy of Rs. 3000 billion? We are holding almost 25 per cent of liquidity and it’s useless,” he said.

President of the Nepal Bankers Association (NBA) Gyanendra Prasad Dhungana said that to increase lending in agriculture, more agro-processing industries were needed. He said that the banks should be large and powerful but it should come from within the banking industry.

President of Nepal Financial Institution Association Saroj kaji Tuladhar urged the NRB to provide housing and real state loan 60 per cent and 50 per cent of the valuation respectively.

He said that current polity of providing 30 per cent loan of the valuation in the Kathmandu valley and 60 per cent of valuation outside the valley was not appropriate.

Published in The Rising Nepali daily on 11 June 2018.