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February, 2002 |
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Biznews |
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Fire Insurance Damn Cheap
Insurance Board (IB) has slashed down
normal fire insurance tariff by an average 50%, effective from January
1, 2002, after sitting over the proposal The rates were prepared six years ago, but the board had been dithering to implement them. Now that they are implemented, the insurance companies are complaining that the rates here are reduced while they are going up throughout the world. Fire insurance business stands as the second largest source of premium collection from the non-life insurance sector in which the total premium collection is Rs. 600 million per year. According to the Board, Fire portfolio accounts for over 26% of the collections, just behind vehicle insurance which accounts for 41%. But the percentage of loss from fire insurance has been the lowest, says the Board justifying the latest tariff reductions. The average loss for the last three years was 25% only of the gross premium under fire portfolio whereas it was 54% in vehicle portfolio, 63% in marine portfolio and 202% in aviation portfolio. With the new General Rules, Nepal finally has its own insurance tariff. Previously Nepal was following the Indian tariff structure. More importantly, the new rules are framed in Nepali language whereas the Interim Fire Tariff was in English. In the other major changes in the tariff structure, it now includes special provision for computer and electronics about which there was no specific arrangement in the earlier Interim Tariff. Responding to the concern that the rates should be better determined by market forces rather than being fixed by a public authority, Chairman of Insurance Board Dr. Prafulla Kumar Kafle says the Board in fact wishes for the rates to be fixed by the market forces, and the current effort is to develop a discipline among the players in the market which, he says, is still not mature enough to be left on its own. One of the Costliest Books The 25-chapter book of the General Rules on Fire Tariff, 2058 is said to have cost Rs. 600,000 to prepare and each of the insurance companies is asked to pay Rs. 40,000 to defray the cost. In return they get five copies. Each additional copy costs Rs. 4,000.
Carpet Floor Price The government has reduced the floor price for the export of Nepali woolen hand knotted carpets to US$ 32 per square meter for those carpets with 80 knots per square meter and US$ 75 per square meter for those with more than 80 knots per square meter. According to the exporters, about 80% of carpets exported from Nepal are of 60 knots per square meter. Earlier, the floor price was US$ 48 per square meter which, the exporters complained, was much higher than the transaction value and had been causing a number of problems to the exporters. Still, the latest decision is far short of the carpet entrepreneurs’ demand who wish the floor price removed altogether. Padma Jyoti to Head SAARC CCI Former FNCCI President Padma Jyoti is unanimously elected as the President of SAARC Chamber of Commerce and Industry (SCCI) by the 8th General Assembly Meeting of SCCI held on January 17 in Kathmandu. Established in 1994, SCCI is the apex trade organization of South Asian region with membership of the apex chambers of each of the seven SAARC countries – Nepal, Bangladesh, Bhutan, India, Maldives, Pakistan and Sri Lanka. Earlier, Qasim Ibrahim of Maldives was the SCCI President. Jyoti is to serve a two year term till 2004. He was senior vice president of SCCI in the earlier executive committee since February 2001. L/C’s Made More Difficult Nepal Rastra Bank's recent instructed to the commercial banks to collect Business Credibility Information (BCI) before dealing in import or export Letters of Credit (L/C) is being opposed by the business community. Effective from mid-January 2002, the provision is aimed to control possible deflection of the foreign exchange, according to NRB sources. But the importers say this has caused the transaction cost to go higher. As per the instructions, the banks are told not to open any L/C in favour of a firm rated as "Credit Risk" "High Credit Risk", or "Rating Not Determined". At present Business Information Service (P) Ltd. (BISPL) is the only agency in Nepal that provides business credibility information as required by the NRB circular. BISPL provides the services as a representative of Don & Bradstreet, a global credit rating agency. According to business sources, the banks demand minimum of Rs. 5,000 per BCI or the price charged by the BCI provider agency before accepting application for opening L/C. The NRB provision is to be followed in every L/C involving US$ 15,000 or more. The business community has asked NRB to make the requirement not mandatory for such a small value as US$ 15,000. Similarly, it has also demanded that collection of BCI should not be made mandatory for multinationals and firms with which Nepali companies have been dealing regularly.
Bank Circular to Business for BCI
Norms for Finance Cos Soon after making the commercial banks comply with a set of eight stringent prudential banking norms and corporate governance requirements, Nepal Rastra Bank (NRB) has now issued a 13-point directive to the non-banking finance companies effective from January 14, 2002. Among the 13 provisions, one stipulates that a member in the board of directors of a finance company has to be a college graduate at least. Similarly, it is also stipulated that only one person from a family will be allowed to sit in the board of a finance company. Likewise, it also states that anyone once blacklisted for defaulting on loans to a bank or financial institution is barred from sitting in the board of any finance company. Such a person can sit in the board only after five years of his/her name being delisted from the dreaded black list. In other provisions, the directives restrict the CEO and board members from being associated with more than one company and require that the CEO of a finance company must fulfil two qualifications: first, he/she must hold a bachelors’ degree in economics or commerce and second he/she should have an experience of working at senior management position of a bank or financial institution. As to the financial norms the directives require the finance companies to keep at least 8% of their total deposit liabilities in the liquid form of which 3% has to be in cash parked either in NRB, in a current account with a commercial bank or in the company’s own vault. Regarding capital adequacy ratio (CAR), the finance companies are required to have, by fiscal year 2002-03, a minimum of 11% of the risk assets backed by total capital fund and 5.5% by core capital. For the current fiscal year the rates are 10% and 5% respectively and are to be increased to 12% and 6% by fiscal year 2003-04. Under another provision of the directive, the non-banking finance companies are allowed to collect as saving deposits up to 25% of their total deposit liabilities and to mobilize as total resources up to 12 times of the core capital under certain conditions and with prior approval from NRB. Likewise, the directives also restrict the promoters from selling or transferring their shares before completing five years of operation of the company and without distributing shares to the general public and getting the stocks listed in the stock exchange. Regarding the provision for defining risk assets, the directives have followed the same definition as for the commercial banks. Accordingly, the loan accounts are classified into four categories instead of five in the past. Loan accounts that are not in arrears for over three months are defined as ‘good’ requiring 1% provisioning. Bad loans are defined as those which are over a year in arrears and they are to be backed by 100% provisioning.l Fiscal Ordinance To meet the mounting fiscal burden of the emergency rule, the government has hiked various tax rates through an ordinance which is strongly criticized by the business community. Reports said quoting finance ministry sources that the government expects to raise Rs. 2 billion from the changes. That means the government expects nearly Rs. 2 billion from the forthcoming Nepal Development Forum meeting in Kathmandu because the Finance Minister about one month ago was quoted as putting the cost of the emergency at Rs. 4 billion. Reacting to the ordinance, the Federation of Nepalese Chamber of Commerce and Industry (FNCCI) has strongly objected to the duty increments stating that the increase was effected without consulting with the Revenue Consultative Committee, which is like a Permanent Tariff Board. FNCCI has also objected against the hike because it comes at a time when the business sector needs a relief package. In the budget estimates for the current fiscal year presented to the parliament early July 2001, the government had targeted to raise a total of Rs. 60.25 billion as revenue out of which Rs. 56.54 billion was to come from existing sources and Rs. 3.7 billion from new proposals, that included the Voluntary Disclosure of Income Scheme (VDIS) and an additional 1% security tax on imports and income. While VDIS yielded about Rs. 442 million by January 14 and it is now extended further till February 12, no figures have been revealed about the amount raised as security tax. The private sector had forecast collections as security tax to reach around Rs. 1 billion. But due to the economic slowdown going on, the government is not able to collect the tax as expected. With the newly fixed rates, imports of paddy and rice will now be taxed at 10% (compared to 5% earlier) while other goods that carried 5% duty earlier are now to be taxed at 6% only. The move also seems to be meant for checking cheap paddy imports which had been hurting domestic producers. In another revision, the rate of security tax has been hiked from 1% to 3%. Similarly, car, jeep, van, motorcycles and pickups are to carry 10% special import duty now. Likewise, Rs. 1 per litre is imposed as special fee on diesel, petrol and kerosene. But Nepal Oil Corporation has stated that the burden of the increased duty will not be passed on to the consumers. The telecommunication service fee has been increased from 10% to 15%. There also has been an excise duty hike of 5% in average on cigarettes, liquor, beer and pan parag together with additional arrangement to bring bottled water and soft drink also into the excise net. The excise on bottled water is Rs. 1 per litre and on soft drinks Rs. 2 per litre. In another important change in the duty structure, the ordinance has substantially hiked the export service fee on some of Nepal’s exports to India in which India has been complaining of "a surge". The fee will now be 10% for vegetable ghee and 6% for copper goods and zinc oxide. This fee for acrylic yarn is however kept at 2% only. The rates earlier were 3% for ghee, copper wire and zinc oxide, while it was 0.5% for acrylic yarn and copper strip. FNCCI National Excellence Award - 2058 Selection process has started for this year’s FNCCI National Excellence Award (FNE Award) to be presented to business organizations on April 10, the Industry Commerce Day.
The award was first instituted last year, but no organizations could qualify for the annual trophy last year for its strict criteria, though citations for good performance were provided to some companies. FNCCI President Rabi Bhakta Shrestha says the failure of the companies to win the trophy last year was because of the short period available for the contestants to participate. Only 14 companies had taken part in the contest last year when the contest was completed with 37 days only. Moreover, as the idea itself was new for Nepal, a lot of important information required was missing thus making it more difficult for the selection team to decide. According to the schedule this year, applications from the contestants are to be collected by February 22, and the evaluation team is to go for a site visit between March 4 and 18. FNCCI has appointed New Business Age, Artha Ko Artha, Radio Sagarmatha and K.A.T.H. 97.9 FM as the official media for selection process for the Award. The nine criteria for FNE Award are developed on the basis of 7-points criteria of the Malcolm Baldridge Award and 10-point criteria of the Demming Application Award and carry 1000 marks. Open to all categories such as manufacturing, service and public sector, there are four levels of recognition including award, prizes, commendation for significant achievement, and commendations for commitment to total quality management. The prizes may be given annually is each of the three categories, i.e. large, medium, and small organization. The best amongst the three in each category may be given the National Excellence Award. For the purpose of the award, enterprises with employees number not exceeding 25 and annual turnover up to Rs. 50 million are classified as "small" whereas those with employees number exceeding 101 and annual turnover exceeding Rs. 250 million are classified as "large" units. From among the organizations that have applied for the award the jury will select only 10 in each category for site visit. Last Year’s FNE Awards
Bajracharya Reelected HAN President The 35th annual General Meeting of Hotel Association Nepal (HAN) has reelected Narendra Bajracharya of Hotel Vajra as its Chairman for the coming two year term. Among the other office bearers are Gautam Das Shrestha of Hotel Sherpa (immediate past president), Prakash Shrestha of Machan Wildlife (first vice president) and Ajaya Ratna Sthapit (second vice-president) Shrestha, was first vice president also in the previous executive committee in which Sthapit of New Hotel Crystal was Honorary Secretary. Prasiddha Bahadur Pandey of Shangri-la Hotel and Shyam Sundar Lal Kakshapati of Riverside Spring Resort have been elected to the honorary positions of secretary and treasurer. |
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