HEADLINE NEWS THE RISING NEPAL (DAILY)

BY A STAFF REPORTER

Kathmandu Nov 23: The Nepal Rastra Bank (NRB) has eventually come up with the long awaited strategy, which aims to bring about the reformation of the 121 financial institutions currently operating in Nepal.

The strategy primarily focuses on enhancing the operations of the two largest commercial banks-Rastriya Banijya Bank (RBB) and Nepal Bank Limited (NBL) holding two third share of the financial market in the country. These two banks of late have been mired by managerial and other problems, and are in dire need of thorough reform.

International financial institutions like the World Bank, Asian Development Bank and the International Monetary Fund have assured the government to provide the assistance for taking ahead its programme of financial sector reforms.

The eighteen point strategy, which includes the amendment of Nepal Rastrya Bank Act 2012 B.S. aims at speeding up the process of financial sector reforms according to a press statement issued here recently.

The financial market in Nepal witnessed a significant expansion in the recent years following the liberal policies taken up by NRB, the apex financial institution in the country.

The programme for improving the financial sector in Nepal started in the eighties. The liberal licensing policy adopted thereafter encouraged more financial institutions to enter the financial markets. Presently there are 14 commercial banks, 47 finance companies, 35 co-operatives and 25 non-government organisations operating in different parts of the country.

The mushroom growth of financial institutions took place following the liberal policy of NRB, but the ensuing setback in the form of managerial weakness were witnessed in the financial institutions in the absence of their effective monitoring and inspection.

In this backdrop the NRB has come up with financial sector reform strategy.

The new strategy will enhance the security to depositors, encouraging them to invest in productive sectors, facilitating flow of financial information, promoting the transparency in transaction, adopting a modern and well-managed auditing system, developing money market and encouraging the flow of export credit.

In the light of the fact that Nepal Bank Limited has not been able to keep track of the financial transactions of Rastrya Banijya Bank, Nepal Industrial Development Corporation, the Central Bank will improve the accounting and auditing system of these institutions and will try to enhance the transparency by regularly disseminating the information of their financial status.

Considering the dismal performance of NBL and RBB with a substantial decrease in gross asset that was found from the recently conducted study on their financial conditions, the central bank would pay a special attention in the line of reconstructing and privatising the NBL and RBB.

Encouraging private sector investment in the opening of co-operative banks though said to be a new breakthrough by the new strategy was already made public through the budget announcement some four months back.

Likewise the central bank now has realised the need of export import banks, investment bank, and Credit Rating Agency and plans to launch them in the near future.

Nepal Rastrya Bank, according to the press statement, is going to implement the Code of Governance related with the financial institutions and amend other financial acts also. The central bank also plans to introduce other necessary act including the Merger and Acquisition Act.

The existing limitation of 50 per cent equity participation for joint ventures NRB is going to be further encouraged in order to attract foreign direct investment. Opening of new branches of foreign banks will be encouraged, the press release said.

In order to solve the present problem of capital ownership the central bank will make the necessary arrangements to check the possession of shares by a single person or a group of institutions.

The central Bank also aims at opening banking training centre and making structural changes in Credit Information Centre.

The Central Bank in its bid to rectify the shortcomings in the financial sector looks forward to establish the Asset Reconstruction Company to reduce the ratio of bad loans and upgrade central banking research and financial monitoring mechanism.

The strategy aims at improving the financial as well as institutional capacity of Rural Development Banks. It aims to provide micro-credit to reduce rural poverty through the launching of income generation programmes for the people.

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