NRB agrees to change directives

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KATHMANDU, June 21- Bowing under strong pressure of the private sector, especially the private joint venture commercial banks, Nepal Rastra Bank (NRB), the central bank of the country, has agreed to introduce changes in the banking operations directives issued last March.

The NRB, in a bid to reform the banking system, especially in the light of negative net worth of Nepal Bank Ltd. (NBL) and Rastriya Banijya Bank (RBB), had issued the directives with stringent banking provisions.

However, the NRB this week buckled down following strong lobby of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and the private commercial banks, who demanded scrapping of some provisions and relaxation of time frame for implementation, among others.

At issue were the regulations relating capital adequacy ratio, classification of loans, loan provisioning requirements, corporate governance, accounting policies and financial statements submission, among a host others.

While the former directives required capital adequacy ratio to touch ten and twelve per cent within the next two fiscal years, the NRB has relaxed it to 9, 10 and 12 per cents respectively to be met in the next three fiscal years. Banks had argued that it would be impossible to raise the capital adequacy ratio to 12 per cent within two years by even capitalizing the whole of the intended dividends disbursement.

The NRB also agreed to phase out bad, doubtful and sub-standard loan loss provisions from the supplementary capital in the fiscal years 2001-02, 2002-03 and 2003-04 respectively.

In the regulation relating to loan classification and provisioning, the commercial banks have agreed to submit the statement of outstanding loans and interest classified on the basis of aging on a half-yearly basis to NRB in FY 2001-02 and quarterly thereafter. The former directives demanded strict compliance on a quarterly basis from FY 2001-02.

In effect, each of the provisions relating to loan classification and provisioning proposed to come into effect from any given year in the previous directives would be deferred by one year. The old directives, among others, required cent per cent provisioning of loans and advances which pass due for a period of over one year within the next three fiscal years.

Furthermore, the old directives refrained banks from recovering principal and interest by overdrawing the current account and exceeding the overdraft time. However, under the new arrangement, loans would be degraded by one step only if the overdue interest or principal realized by overdrawing or exceeding the limit of overdraft are not settled within one month from the date at which it was overdrawn.

Relating to the accounting policies and format of financial statements, the NRB and the private joint venture banks have agreed to repeal the former arrangement that required statement of deposit showing the amount collected and withdrawn during any fiscal year. The annulment followed after banks pressed that the provision is impractical and is not possible for the banks to follow.

Furthermore, the former provision that required charging of bad debts to Profit and Loss account has been deleted since Income Tax Act does not allow writing off loans on which provisions has already been made by charging the P/L account.

Similarly, the regulations relating to corporate governance will also be changed. The NRB initially had directed the banks to furnish report on all the directors and employees on a quarterly basis. However, following the voice raised by commercial banks that such a step would be impractical, only exceptional reporting will be made applicable.

In addition, the former regulation on corporate governance required the approval of the NRB for the appointment of the Chief Executive Officer (CEO), which banks claimed interfered with the rights of the Board of Directors (BoD). The NRB has agreed to scrap the clause and instead apply the need to inform the central bank about the CEO’s appointment and his remuneration.

However, the NRB is yet to issue an amended version of the directives as some debated issues still remain to be finalized. Among others, one relates to the audit committee and another relates to the procedures of blacklisting defaulting borrowers.

New pension scheme in the offing

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KATHMANDU, June 21 - In a bid to curb the skyrocketing pension expense amount of the civil servants, the government is planning to introduce a new pension scheme in the forthcoming budget.

Government sources told The Kathmandu Post that the amount of pension liabilities of the government has swelled considerably in recent years forcing it to look for alternatives.

"The pension liabilities of the retired civil servants have become unaffordable to the government as it alone swallows up over 3 per cent of the revenue up from a mere 1 per cent 17 years ago," said Shankar Sharma, Member of the National Planning Commission (NPC).

He further said since the government alone can’t keep on funding the whole pension burden, it is considering various options to reduce it.

Sources close to the new scheme informed that the government is considering four different options. First, to increase the current level of provident fund from 10 to 20 per cent of the basic salary with equal contribution from the government. Under this scheme, which is practiced in some South East Asian nations, certain allowances are also provided to the employees at the end of each fiscal years depending upon the economic growth achieved.

The second option is bearing the pension burden of the retired employees by the existing working force. That along with the contribution of the government, is a fund created by cutting certain portion of employees’ salary to bear the pension burden.

Third, allocating certain amount annually for each employee after he joins the government service, which will be used to finance his pension burden after retirement. But, due to the financial constraint of the government, this particular proposal has been given the least priority.

The fourth option, which is being considered with much emphasis, is to create a pension fund similar to the provident fund. Under the proposal, certain per cent of an employee’s salary will be deducted and an equal amount will be contributed by the government.

However, unlike provident fund, employees will not be allowed to withdraw the fund after their retirement. "Since this scheme is less expensive compared to others, the government probably will implement it," Sharma said. He also added that the new scheme would be enforced only for the new civil servants to be recruited from the coming fiscal year.

Top senior officials have often stated publicly that the soaring burden is one of the principal financial problems of the government that has pushed up the regular expenditure, and which is badly in need of a long term solution.

The main cause of the rise in pension burden is the government’s decision taken some years ago to include public school teachers into the pension scheme. Similarly, the hike in civil servants’ pay made last year and growing popularity of the Voluntary Retirement Scheme are other main causes of such surge in the pension liabilities. On average, 100 per cent increase in the salary raises the pension amount by 66 percent.

According to a study, though the cash-in-hand salary of the government employees is less than that obtained by the private sector employees, the aggregate financial benefits of the civil servants is far greater than that of private sector employees.

The average pension-receiving period of civil servants is 15 years, for retired army personnel, it is 20 to 30 years and for the police 30 years.

The pension burden has increased unbearably in recent years. The government had allocated Rs 1.45 billion for meeting the pension liabilities in the current fiscal year, but within the first half alone, such expenditure exceeded the total amount touching Rs 1.63 billion.

Sources at the Ministry of Finance (MoF) said that the total pension burden by the end of the current fiscal year could scale up to Rs 3 billion. "Based on the past trend, the annual pension burden could cross 15 billion in the next 15 years, if nothing is done," Sharma said.

The MoF source also said that the government, in the context of decentralization, is mulling to transfer school teachers’ fund to the local bodies, which is expected to help reduce government’s burden. Under this, primary school teachers would be transferred to VDCs while secondary and high school teachers to DDCs. Similarly, the government will also review the retirement policy of army and police personnel, said the source.

Spice Cell Nepal registered
Triggers hopes of cheaper cell phone

KATHMANDU, June 21 (PR) - Spice Cell Nepal Private Limited, a joint venture of the Khetan Group and Spice Cell of Modi Telestra India, was today registered at the Department of Industry, as a part of initiating the process of acquiring licence for opearting cellular mobile phone from the private sector.

The registration of the company has aroused hopes among the potential clients of buying cell phones at an affordable price in the near future. However, the company was expected to distribute mobile phones at far lower price than the existing ones being distributed by the Nepal Telecommunications Corporation (NTC).

But the company suffered a major set back as a writ petition filed against the company, Nepal Telecommunications Authority (NTA) and the Ministry of Information and Communications by Telecommnicationa Employees Association of Nepal (TEAN) at the Supreme Court a couple of months ago, arguing that the licence was given to the comany in contravene to the Nepal Telecommunications Act, 2053.

The Khetan Group was awarded the contract to operate cellular mobile phones across the kingdom through a competitive bid on November 1, 2000.

Though the Court has not decided the case, the company is learnt to be making necessary arrangements to operate the service, since the court does not prohibit such act. The Indian partners of the company is learnt to be in the Capital in connection with initiating the establishment process of the company.

According to Rajendra Khetan, managing Director of the Khetan Group, the company will also be registered as an industry after the office opens on Monday. The Group had registered joint venture agreement on March 16, 2001.

Earlier, the group had registered the joint venture agreement with Nepal Telecommunications Authority, a regularity body in the telecom services. Khetan also said that all the necessary works for operation will begin within three months as there's no legal hurdle. He also repeated his commitment of providing cell phones at an affordable price.

"Our service will be quite affordable. The total cost of a cell phone purchase would not exceed Rs 15,000," Khetan said. It is learnt that the company is going to distribute cell phone connections in keeping with the demand of the market. Khetan group has 40 per cent and the spice cell has 60 per cent share in the joint venture.

Effective implementation of animal quarantine laws stressed

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KATHMANDU, June 21 - Participants of an interaction program have stressed on the need of enhancing coordination among concerned agencies for the better implementation of animal quarantine laws.

They also pointed out the need for creating awareness among the general public, importers of livestocks, fowls and animal products and among customs officials, too, speaking at an interaction on Animal Quarantine at the local level organized here today.

Government has set up 25 animal quarantine check posts at varous entry points and at some places within the country with a view to check the imports of livestocks, fowls and animal products whether they are infected with comunicable diseases and whether they are imported illegally.

According to Animal Health and Livestock Services Regulations, 2056, any importer has to acquire import licence from Import Licensing Committee formed at the Animal Health Directorate.

Dr Bala Ram Thapa of the Animal Quarantine Section presenting a paper on animal quarantine said that only with the coordination of agencies like customs offices, police posts and district administrations, animal diseases can be controlled easily.

He also requested the concerned agencies not to allow the import of livestock, fowls and animal products like canned milk, frozen meat etc without having quarantine certificates.

Dr Shuv Narayan Mahato, Program Director at the Directorate of Animal Health, Department of Livestock Services said that government has est up quarantine check posts at different places in order to ensure disease free import of livestock and animal products from abroad.

According to him, there are 21 animal quarantine check posts at nepal-India border, one at Nepal-China border, one at the Tribhuvan International Airport (TIA) and one each at Pathliya and Kurintar. The two check posts at Pathliya and Kurintar are established with a view to control communication of diseases through livestock and animal products which have already entered the country, he added.

In practice, the animal quarantine check posts release imported livestock and animal products on the basis of the quarantine certification of the countries of origin, but if there is suspicion, the check post can make a thorough investigation of such products.

Some of the participants at the interaction program suggested to deploy officials of the animal quarantine check post for 24 hours at the TIA as some consignments arrive during night and they have to be released immediately.

Moreover, the airport does not have required space and cold storage to stockpile such consignments until quarantine officials check them.

If any party imports disease-infected livestock, fowls and animal products illegally, quarantine office can fine up to Rs 50,000 to such importer. Similarly, Rs 10,000 is fined if some one imports prohibited items.

The day-long interaction was organized by Animal Quarantine Unit of Animal Quarantine Section on behalf of Tribhuvan International Airport Customs office.