Credit Information Bureau to be restructured

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KATHMANDU, Feb 25 - Nepal Rastra Bank (NRB), in the second phase of the financial sector reform, is going to restructure Credit Information Bureau (CIB), following the hand-over of management contract to private sector.

According to Prem Shankar Shrestha, Chief of the Bureau, an internal task-force has been studying on restructuring of the Bureau. The restructuring is being done with a major assistance from the World Bank (WB), one of Nepal’s biggest donors. The Asian Development Bank (ADB) and the International Monetary Fund (IMF) are also helping in the process.

The Bureau, which is under the Nepal Bankers’ Association presently, will be made an independent entity following its restructure. Currently 17 banks including the commercial and the development are its members. In keeping with the increased banking transactions of finance companies and cooperatives, they would also be brought under it, says Shrestha.

The Bureau informs banks on the financial capacity of loan seekers, their past banking transactions, their outstanding payment etc., depending on the information it receives from the concerned banks, which in effect, discourages insolvent borrowers from taking loans from other finance companies or cooperatives or banks.

However, all the banks, finance companies or cooperatives do not furnish details of their borrowers to the Bureau regularly, which is creating difficulty in updating the information it keeps, he says.

"There is no legal provision on taking actions against banks if they do not provide such information regularly. This has made the activities of the Bureau ineffective. That’s why this institution is in preliminary stage, though it is a decade old," he says.

Earlier, Shrestha speaking at a seminar on ‘Credit Rating in Nepal’, he had pointed out the need of formulating legal framework in order to strengthen the restructuring of the Bureau.

"The central bank should formulate necessary laws and policy if the Bureau has to be made effective", he suggests. If the Bureau is effective, it can find out the financial condition of the loan seekers, which will be instrumental in curbing the banking frauds, he said adding, it would bring down unproductive loan and flow loans to right people/organizations.

The Bureau has blacklisted 1,300 borrowers defaulting loans exceeding Rs 2 million. Similarly, it has labeled 600 borrowers not repaying loans exceeding Rs .5 to 2 million as defaulters.

Speaking at the seminar organized by Nepal Economic Association and the central bank, Governor Dipendra Purush Dhakal stressing on the efficacy of the Bureau said for economic and financial reforms restructuring of the CIB is imperative. But so far as credit rating is concerned, it is confined to concept only now, he said.

Deputy Governor, Ram Babu Pant said as the financial sector is expanding, there is a need to have some organizational structure in order to win the confidence of investors. For the effectiveness in the financial sector, establishment of credit rating agency and restructuring of the CIB are but inevitable, he added.

Professor Bishwombhar Pyakurel, President of the Association, lauded the central bank’s commitment for restructuring the Bureau. Vice-President of the Association, Professor Madan Kumar Dahal emphasized on the need of regular interaction among the experts, policy makers and the economists on credit rating.

Presenting a paper on credit rating, Rajesh Mirchandani of Dun and Bradstreet India, said if credit rating is implemented, it would reduce banking transaction frauds to a greater extent, although it may not bring down it to zero level.

He also said that while lending, banks should prioritize small and medium enterprises. The small and medium industries are the fundamental factors pushing up the economy but they have no other sources of getting loans. Therefore, banks can help in the economic growth by providing loans to such industries, he added.

Economy, finance and market

By Supa Upadhyay

Domestic money market:

As the banking sector being flush with high liquidity, the Average Weighted Discount Rate (AWDR) of 91-day Treasury Bills (TBs) dipped sharply by 16 basis points to 4.95 percent compared to the previous week. The rupee was traded higher at 98.79 and lower at 98.76 for 91-day TBs. The NRB had received 41 bids worth NPR 3800 million against the notified amount NPR 1260 million for 91-day TBs. In the regular weekly auction, the NRB is going to issue 91-day TBs comparatively a large volume worth NPR 890 million on February 27, 2001.

Domestic capital market:

The prices of many banks, finance companies and insurance companies nose-dived further. It was noted that some of speculators were artificially propping up the market during the previous few months and the prices of many companies were rising. Now it seems, the market is discovering its own level. The NEPSE Index-100 opened lower at 430.75 from the previous week close of 436.97 slipped further in all consecutive days and finally closed lower at 402.53 for the week, netting a loss of 34.44 points. Shares this week, trading was estimated at 48523 valued NPR 43.3 million compared to 55023 shares valued NPR 59.8 million of previous week. Commercial banks shared 91.55 percent of total traded amount. This week, the index of commercial banks, hotel sector, finance/insurance sector and other sector lost. While business sector and production sector remains unchanged at their previous week price. This week, brokers had quoted the prices of 49 companies on the trading board but 36 companies were traded. Out of thirty-six traded companies, three companies improved, twenty companies lost, and other thirteen traded companies remain unchanged at their previous prices. NIC Bank, Taragaon Regency Hotel and Bank of Kathmandu registered the first, the second and the third most traded company trading 11080, 8360 and 5662 shares respectively. Shares of Nabil Bank, Nepal Grindlays Bank, Nepal SBI Bank, Nepal B’desh Bank, Everest Bank, Bank of Kathmandu, NIC Bank, Taragaon Regency Hotel, and Lumbini Finance and Leasing were able to trade in all four working days. Likewise, Nepal Bank ltd., Nepal Indosuez Bank, Necon Air, Premier Insurance, Everest Insurance and Nepal Housing Dev. Finance were able to trade in three working days.

Forex round-up:

The USD indeed the week strengthening against all its major partners. The Euro fall to a new low for the year against the USD of 0.9073. The Euro fall was prompted by heavy EUR/JPY selling which pushed both EUR/USD and USD/JPY lower. Going forward here the Forex market will continue to the heavily influence by the US economy and US asset market.

Over 300 ADB employees for voluntary retirement

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KATHMANDU, Feb 25 - More than 300 employees of the Agricultural Development Bank (ADB) have applied for voluntary retirement, affecting the bank's daily work for quite some time.

They made the move as the government tabled a bill at the parliament on levying tax on provident fund and gratuity of the employees of the bank.

The Financial Administration Regulations of the bank has a provision of relieving its employees already serving for over 15 years of their positions by providing an additional five years of service count.

A highly placed source at the bank says, the employees have applied for voluntary retirement on the rumor that once the bill is passed, it will take away a big amount of their gratuity, which is taxable.

The government tabled the bill at the parliament in the winter session of the House, which aims at bringing all monetary income into the tax net.

However, the bank regulations do not make the clause of providing gratuity to those serving 15 years as mandatory. The banks management holds the rights of relieving such employees under the scheme, if it deems it expedient, says the source.

The move has created uncertainty among the employees of the bank. However, the management has said that it would decide on the issue only after two weeks. The management says it is difficult to decide on giving voluntary retirement to them, as it adds a heavy economic burden to the bank.

The source says, the Finance Ministry is said to be scrapping the provision of voluntary retirement scheme with effect from the New Year 2058, according to Nepalese calendar.