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Kathmandu Wednesday January 09, 2002 Paush 25, 2058.
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Rastra Bank issues new directives
Post Report
KATHMANDU, Jan 8: In order to safeguard the interests of depositors and to
make the functioning of financial institutions more organised and dignified by enhancing
transparency and competition, Nepal Rastra Bank (NRB) has issued a new directives.
The directives, among others, have also made some changes with regards to
capital fund requirements and deposit collection by finance companies.
According to a press release issued by the central bank here today, the new
directives have been issued as per the Nepal Rastra Bank Act 2012 and Finance Company Act
2042, and would be effective from February 14, 2002.
As per the new directives, the capital fund of 10 per cent would consist of 5
per cent core capital, while the rest would be covered by supplementary capital for the
current fiscal year. However, the finance companies will have to arrange for 5.5 per cent
of the core capital to increase the capital fund to 11 per cent by the end of fiscal year
2002/03, and to 6 per cent the next fiscal year to increase the capital fund to 12 per
cent.
Similarly, finance companies can collect financial resources up to 12 times
of the capital fund by taking prior permission and confining themselves within the
specified conditions of the central bank
Likewise, finance companies will have to maintain liquidity of at least 8 per
cent of the total deposits, out of which at least 3 per cent will have to be in cash
either in their own vaults, or with the NRB or in a current account of a commercial bank.
The new directives has also reduced the categorisation of loan investment of
the finance companies into 4 classes against 5 in the previous arrangement. Under the new
arrangement, loans that have not been defaulted by over 3 months will be put under the
good loan category. However, the loan would be put into the inferior category if it is
defaulted by 3 to 6 months.
Similarly, suspected loans would be those that have been defaulted by 6 to 12
months and any loans defaulted by up to 1 year will be put in the category of bad loans.
The finance companies will have to arrange for at least 1 per cent, 25 per cent, 50
percent and 100 per cent in provisions for loan loss for the above four categories.
The directives has also divided loans into active and passive classes and the
passive loans would be rescheduled or restructured as per specific rules. The new
directives has also made changes in sectoral loan investment, sale of promoters’
shares, auditing and distribution of net profit and dividends.
Furthermore, the directives has laid emphasis on good governance under which
it has issued clear cut direction on the appointment of the board of directors, the code
of conduct of the directors and employees and their accountability and responsibility,
appointment of chief executive and appointment of the auditing committee of the finance
companies.
Similarly, the new directives has also banned
extension of loans by the finance companies to its board members, shareholders or
employees, including their relatives. Likewise, promoters would not be allowed to sell
their shares before the completion of five years of operation of the company. Also, sale
of such shares would not be allowed before shares are issued to the general public and
before it is listed in the stock exchange. The distribution of dividends, including bonus
shares, has been banned until the company issue shares to the general public.
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