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Kathmandu Friday June 22, 2001 Ashadh 08, 2058.
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NRB agrees to change
directives
Post Report
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.
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