Don't Stop New Banks, Improve Regulations: NRB Study
Against the backdrop of complaints that the number of banking institutions in the country has exceeded the tolerable limits, a recent study by Nepal Rastra Bank has concluded that it would be better to focus on regulation than on restricting entry of new banks.
The number of financial institutions in the country has reached 206 including 21 commercial banks, 37 development banks, 73 financial companies and 11 short-term financial development bank and 17 savings and loan cooperatives. Proposals to open other 40 financial institutions including three commercial banks are in the pipeline.
In one of its conclusions, the recent study has noted that the level of financial sector development in the country is at par with SAARC region but still behind that of Thailand and Malaysia.
Against this fact, strengthening the regulatory capacity of the NRB should be the option rather than the restriction on the entry of new banks, says the study adding that in a liberalised economy it is the market that determines the number of financial institutions not the central bank.
The study reports that the access to banking services is much higher in the urban areas than in rural areas. The population per bank branch in Kathmandu is 14,000. The ratio comes down to 9,000 when all the financial intermediaries are taken in account, shows the study. “These evidences suggest that financial widening is high in Kathmandu valley, almost similar to the country level of Sri Lanka,” it says.
However, in the national level, Nepal has only one bank for 58,000 people whereas in India every 16,000 people have at least one bank branch. This ratio in Pakistan is 20,752, in Sri Lanka 13,973 and in Thailand 13,619.
By geographical distribution, Nepal’s Mid-Western and Far Western regions have the highest population per bank branch and it is the lowest in the central development region.
Thus, the study has concluded that regions which are far behind in a number of dimensions of economic development are under-banked.
To address this problem, the study has recommended for policies that spur expansion of banking and financial services to semi-urban and rural areas while advising to remain cautious in granting permission for new banks in Kathmandu valley and adjoining districts.
The study also advises against increasing the minimum capital requirement for new banks. Such increase in the minimum capital requirement may discourage the professional investors from entering this sector while it may fail to check the unscrupulous elements from entering this sector, it has warned. However, the study has recommended increasing the required minimum educational qualification and experience of the promoters and inquiring about the source of the capital invested by the promoters.
In another recommendation, the study has underlined the need for more stringent rules to prevent NRB officers from joining private banks after they leave the central bank. This provision should be applicable also for the members of the NRB Board, it says.
In another recommendation, the study has advised to amend rules to take actions against not only the big shareholders but also against the CEO and other high level executives who earn big salary. Similarly, it has recommended for the loan limits to be tied with the ratio of bad loans and to adopt statistical models in banks monitoring so that early warning signals are detected in time.
Power Bonds against the Security of Chilime's Shares
Nepal Electricity Authority (NEA) is to issue power bonds worth Rs. 3 billion to fund Mid-Marsyangdi and Kulekhani-III projects and civil works in Chameliya Project against the security of its shares in Chilime Hydropower Company. Chilime is listed in the Nepal Stock Exchange and the ongoing market value of 4.89 million shares held by NEA in the company exceeds Rs. 7 billion.
According to the latest reports, Nepal Merchant banking and Finance Company is appointed the issue manager for the purpose. The bonds are to be issued in three tranches and carry a coupon interest rate of 8 percent to be paid every six months.
The Finance and Water Resources Ministries have already approved NEA’s proposal while the approval from the cabinet and the Securities Board are awaited, said Uttar Kumar Shrestha, Deputy Executive Director of NEA.
According to him, the bonds will be for the period of five years and 90 percent of them will be sold to institutional investors whereas 10 percent will be sold to individual investors.
Commission Proposed to Protect Consumers
The Department of Commerce has drafted a Consumer Protection Law with provision to set up the Consumer Protection Commission. The draft law is to amend the existing Consumer Protection Act 2054.
Explaining the logic for the proposed Commission, Prem Kumar Rai, Director General of the Department of Commerce, said it will be the only solution to the present problems faced in protecting the consumer rights because of the multiplicity of consumer protection laws and their implementing agencies.
There are more than five Acts on the protection of consumers, more than 13 on regulation of trade on commodities and more than 20 on regulation of trade in services with responsibilities of their implementation entrusted to varied government bodies such as the Department of Commerce, Food Technology and Quality Control Department, Department of Standards and Metrology, Department of Drug Administration and Office of the Company Registrar.
“Since there are too many laws on consumer protection causing duplication of works and partial implementation of the related laws as well as conflicting provisions in a number of cases, there is a need to have a single powerful body that can take coordinated actions for the protection of the consumer,” he said.
According to the draft bill, the proposed Commission will have five members including a chairperson, all experts in the related areas like commerce, industry, law and administration.
Vintage Beauty
Though a poor country Nepal has many vintage machines - not only vehicles but factory machines as well. However, because of the absence of a machines museum, these antiques are lying away from the public view. Manufactured by Hopkinson’s & Cope in Finsbury, London in 1883, the year when Karl Marx died, this Albion Press is an industrial antique now lying idle though in a perfect condition at Biratnagar at its owner’s place. The machine has a British coat of arms inscribed in its solid body and has its legs decorated with leaf patterns terminating in claws on square blocks. One similar to this 1883 vintage is in Singapore, another one is in the industrial museum of Delhi, where it is proudly exhibited with an introduction that Amrit Bazaar Patrika was printed in this machine. According to the owner of this Albion Press machine at Biratnagar, one such machine is in Bangalore Museum though that is called Columbian press which is similar to the one brought by Jung Bahadur Rana from England in 1851 AD and on which Gorkhapatra was printed in early period. However, the Gorkhapatra machine is not intact these days. As may be recalled, Nepal Railway too has engines that have similar or even higher vintage value though not much has brought out about its present condition.
From India, Nepal Receives Rs. 22b Remittances
According to a recently released survey conducted by Nepal Rastra Bank (NRB), Nepal receives Rs. 22.868 billion as remittances a year from those working in India. But the irony is that 76 percent of Nepali labourers working in India send remittances through unofficial means risking loss of their hard earned money. Only three percent of them use official channels while the rest carry their earning with them when they return home.
The survey, conducted in New Delhi of India, has identified lack of awareness about the official channels as the major cause for the Nepali labourers not being able to send earnings through money transfer agencies or banks. Forty out of 106 respondents of the survey were found to have an account in the bank but only 35 percent knew that they could send money through their accounts. Fifteen percent of the labourers suffer as their money sent home gets lost on the way.
54 percent of labourers are still unaware that they can send their earnings through banks. According to International Monetary Fund Country Report 2006, if the remittance is excluded from Nepal’s economy, the poverty level could jump to 36-37 percent from the current level of 31 percent.
The survey also found that fourteen percent of the labourers were discouraged to use forma channels due to exorbitantly high fees while 16 percent complained that the banks were far from their residences or workplace. Some respondents, were unable to open an account in Indian bank as they carry no identification papers with them.
Eighty-nine percent of such labourers are found to be ready to send their earnings through bank and such official means provided it became easy for them.
The study has also reported that 36 percent of the labourers earn INR. 3,000 to 5,000 a month whereas 34 percent make less than INR. 3,000 a month. Fourteen percent are found to have been able to make INR. 7,000 to 10,000 per month.
According to the study, almost 80 percent of remittance coming from India is spent on building houses in Nepal leaving only 20 percent for starting businesses.
Among the Nepali workers in India, according to the study, only five percent are women. A majority of the Nepali work forces there are found uneducated. The study reports that 41 percent of them are found to have gone to high school whereas 17 percent barely made to lower secondary school. The number of labourers who attended only the primary grades is around 19 percent, according to the study. Twelve percent of the labourers are found to have completed under-graduate level and only seven percent had undergone some sort of vocational training.
Compared to other cities of India, the huge concentration of Nepali labourers is in New Delhi putting the figure at 27.7 percent followed by Mumbai’s 8.2 and Himachal Pradesh’s 7.7 percent. Rest 31.4 percent are scattered around different cities of India.
In New Delhi, 59 percent were found to have been working for more than 10 years. Forty-nine percent were found to have shared apartments with friends and relatives. While 26 percent of the men and women worked in the factories, 13 percent worked on daily wages and only four percent were found to be in government sectors.
The study found that one Nepali labourer in India sends home INR. 25,016 as remittances a year in average.
In the survey, the NRB relied on the data from the census of 2001 which puts the number of unskilled and semiskilled Nepalis working in India at 589,000. Among other researchers, some have put this number at 2.5 million.
