New NRB directive hits four FIs’ expansion plans

KATHMANDU, FEB 23 -

The new Nepal Rastra Bank (NRB) directive on operating area expansion of financial institutions (FIs) has hit expansion plans of four development banks.

Banepa-based Annapurna Development Bank, Pashupati Development Bank and Infrastructure Development Bank and Pokhara-based Business Development Bank have now been barred from expanding themselves to national level.

Although these institutions had applied for upgradation by fulfiling the required criteria as per the earlier provision, they do not meet the new criteria.

Business and Annapurna had applied for the upgradation 11 months ago, while other two had applied seven months ago. “They should be allowed to upgrade as per the old criteria as they had applied a long time ago,” said Jhapat Bohora, President of Development Bankers’ Association.

An NRB source said the central bank is positive for allowing these institutions for upgradation on the basis of their corporate governance. “The governor wants to allow upgradation of FIs that have applied long before the introduction of the new guideline on the basis of their corporate governance,” said the source.

The central bank sought a controlled expansion of FIs, as they were tending to expand their operation area without being stronger in the first designated area. The NRB says that the main objective for the establishment of development banks is to promote banking services at local level; however, they are aspiring to enter the Kathmandu Valley. “Expansion of FIs having poor governance poses a huge threat to the financial system,” said an NRB official.

As per the new directive, the aforementioned banks should have collected deposits of around Rs 3 billion for expanding, but none of them has collected the required deposit. The directive says that those willing to expand their presence should have collected 60 percent of the permitted financial resources.

Three district-based Siddhartha Development Bank has already been upgraded to national level. Pashupati, Annapurna and Infrastructure are 10 district-based, while Business Development Bank is three district-based.

“The central bank should not prevent these banks from expanding at a time when investors are investing in the banking sector despite crisis,” said Bohora.

Officials of the Development Bank Association met Governor Yubaraj Khatiwada on Monday and asked him to allow the four FIs to expand as per the earlier criteria. The officials have also forwarded their demand in written after the governor asked to do so.

Posted on: 2011-02-23 09:03
http://www.ekantipur.com/2011/02/23/business/new-nrb-directive-hits-four-fis-expansion-plans/330010.html