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Vol. 4 :: No. 2 February,
2002 (Magh
- Falgun)
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Banking |
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Banking Guidelines & the Revised Ones Quite Misguiding By Kapil P. Lohani
Nepal Rastra Bank has been playing a key role in guiding the commercial banks to deliver quality service to the customers and secure the valuable investment of the shareholders since its inception and mainly after the establishment of joint venture banks in Nepal. However, there are many instances where the central bank has shown great hurry in issuing important directives and guidelines, and these, in turn, have left negative impact on the banking sector. We can take example of some recent directives, which after some time had to be amended. Nepal Rastra Bank issued a number of directives to the commercial banks this fiscal year. They were, in fact, issued to comply the commercial banks of Nepal with international banking norms. These six directives were good ones as they were issued to reduce the non-performing asset of the banks by discouraging bad loans and to make the banks cautious before the loans become bad. Likewise, one of these directives was issued to increase the capital base of the Nepalese banks. But, due to the environment in which the Nepalese banks have to operate in Nepal, the six directives had to be revised after thorough consultation with the banks and their association. Nepal Rastra Bank then revised these directives and also added three more to make a list of nine directives, which are now considered to be very important directives for the Nepalese banks for their sustainability and growth. Nepal Rastra Bank issued yet another directive to the commercial banks in December 2001. This directive was aimed at preventing the Nepalese exporting and importing firms from being cheated by some foreign firms having low credibility in their respective countries and at controlling the possible misutilization of foreign currency while making transaction through letter of credit. The directive said that the commercial banks have to obtain Business Credibility Report of exporting and importing foreign firms, companies, and organizations for amount exceeding US$ 15,000 before opening import license or purchasing export documents. The practice of obtaining such credibility report is found in many countries as it is considered to be an effective tool to control the misutilization of foreign currency. But some of the steps that NRB had pointed out in the directive do not seem practical. For example, US$ 15,000 is a very small amount in Nepalese international business in current situation, and most of the letters of credit opened from our banks are far bigger than this amount. Hence, the ceiling would have been appropriate if it was fixed somewhere between 150,000 and 200,000 dollars in the present economic context. Likewise, the central bank has fixed the validity of the credibility report for only three months, which does not sound practical both from the view point of the foreign firms and their Nepalese counter parts. The local business firms have to pay about US$ 200 to obtain each credibility report and it also takes quite some time to receive it from the foreign firms causing delay in opening LCs and importing/exporting goods. It was due to this reason that the opening of letters of credit amounting US$ 15,000 or more dropped drastically just after the implementation of this directive on 14th January, 2002. Some rumors are also doing rounds that the central bank, after having thorough consultation with commercial banks and the industrial and business community, is working out to revise the problematic clauses of the directive. It is said that the US$ 15,000 ceiling is going to be revised to US$ 50,000, which is still inadequate. Similarly, the validity of the once obtained Business Credibility Report is going to be extended to one year. Besides, the NRB is also considering the acceptance of credibility reports sent by the international correspondent banks of local banks, and is thinking to waive the clause requiring such reports to clean documents without discrepancy, time L/Cs, and back to back L/Cs. Sources say that if the rating is not available or determined in the report, the L/Cs can still be opened after the approval of one step higher authority in the banks. If the above rumor is true (rumors are in most of the cases and time true news in Nepal), then the introduction of the requirement of Business Credibility Report by the central bank will surely prove to be a milestone in the international banking business in Nepal. The terrorist attack on United States of America on 11 September, 2001 has slowed down the world business remarkably and a sort of global economic slow-down is still being experienced. The government and the central bank, in such a state of recession, should play even greater role in boosting the industrial, business, tourism and other core sectors of the country. The issuance of directives, guidelines, and regulations should be done only after carrying out proper homework and consultation with the concerned experts so that no embarrassing amendment has to be done right after their issuance. Dr. Thakur Nath Pant, I Salute thou As usual, on Saturday, January 26, I turn my television on at 8:00 PM for the news—to expect good ones. But to my surprise, the news-reader began to tell a bitter truth that Dr. Thakur Nath Pant died this afternoon of heart failure at Norvic. A healthy, energetic, perfect gentle man having a great sense of humor is no more. A person who made great contribution to the nation as an agricultural economist, and later on as an educationalist, banker and even entrepreneur just vanished at the age of 64, it was completely unbelievable. I recalled the days when I had the chance to work with him in 1986 in the Ministry of Finance as he was the National Project Director of our project called Programme Budgeting and Project Monitoring Project. The expatriates and all the consultants including myself used to be inspired by the way he worked so diligently till midnight during budget preparation and the way he led the team. During our frequent meetings, we used to talk about the economic and political situation of the country. He had his own view on banking business. He knew as to how the unnecessary expenses can be curtailed in the banking business. About a year ago he had told me that he was not in favor of expensive machines such as ATMs in present context as the amount required to purchase one unit of ATM is enough to open a branch in a commercially viable place and if two more persons are deputed till midnight and during bank holidays, then it would do the job of the ATM. I was quite impressed by his remarks as the price of technology is very high and it is changing very fast making it more expensive. Dr. Pant was quite interested in politics. Once he had told me that he had a desire to contest the election for the House of Representatives but later on he dropped the idea after analyzing the way in which politics was heading. Few months ago, I had met him in T.U. Teaching Hospital, where he was admitted for the treatment of urine infection. He was not seriously ill and smilingly said, "Kapil, there is nothing in this life, you are alright today, and tomorrow when you wake up, you have this ache, that ailment, visit the doctor who only advises you to have full course of drugs and medicines." I still remember the way he used to look at the dearer ones from the upper corner of his spectacles. A tribute to the multi-dimensional veteran who is no more but has left scars for remembrance forever. I salute thou. By Kapil Lohani |
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