NRB Strategy
THE banking and finance sector has seen a big growth in the country over
recent times. Liberalisation of the sector has encouraged many investors to jump in. The
liberal banking policy that started in the mideighties created the space for more
financial institutions to come up. At present, they include 14 commercial banks, 47
finance companies, 35 cooperatives and 25 non-governmental organisations with functions
similar to that of a financial institution. Thanks to the mushroom growth of banks and
other financial institutions, the average client has an array of financial institutions to
choose from for his/her related needs. But the growth in the banking and finance sector
has not come without problems. In more recent times, there has been a growing concern that
due reforms of the sector had not been thought of and implemented. Particularly, close
monitoring of these financial institutions is conspicuous by its absence. There have been
instances when financial institutions have just vanished with depositors’ money. Lack
of transparency about these financial institutions often means that a depositor is unaware
of its true financial position. For example, it has been difficult for an average client
of the two largest commercial banks—Rastriya Banijya Bank (RBB) and Nepal Bank
Limited (NBL) —to have a true picture of their finances. That is so because their
accounting and auditing systems are not up to the mark. The institutions are not
transparent. The two banks, that hold two-third share of the financial market of the
country, have been much in the news recently for their shaky financial positions. What is
making the matters worse is that flow of information regarding their financial status is
not forthcoming. There are other financial institutions too which stand on unstable
foundations because their investment has not gone to productive sectors.
It is against this backdrop that Nepal Rastra
Bank’s (NRB) announcement of a long-awaited strategy which aims to reform the
financial institutions should be heartily welcomed. The new strategy is aimed at enhancing
the security to depositors, encourage them to invest in productive sectors, facilitating
flow of financial information, promoting transparency in transaction, adopting a modern
and well-managed auditing system, developing money market and encouraging the flow of
export credit. That is a lot of things to be done. For the start, NRB would do well to
concentrate its energy and time on restructuring NBL and RBB and assure these banks’
clients that these banks will not be allowed to run as before.
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