Govt expedites efforts to solve problems facing banking sector

KATHMANDU, JUN 13 -

With one after another financial institutions heading towards crisis, the government has stepped up its efforts to address the situation.

Finance ministry on Sunday organised a stakeholder meeting to take account of the gravity of the situation and seek their advice for the new budget.

At the meeting, bankers sought several measures to ease the liquidity crisis in the banking system including extension of repayment of period of inter-bank lending to six months from current one week and extension of refinancing period for one year from existing six months, according Jhapat Bohora, president of Development Bankers’ Association. They also demanded early expenditure of the government budget and timely budget presentation to ease liquidity crunch next year.

Given the central bank already introducing special refinancing measures allowing Banks and financial institutions (BFIs) to get refinancing of 60 percent of their core capital for 120 days, bankers demanded extension of the repayment period. They can get refinancing up to 80 percent against their good loans.

“With the NRB providing us refinancing against our good loans, a majority of finance companies will apply for cash from the central bank,” said Rajendra Man Shakya, president Finance Companies’ Association of Nepal.

NRB assumes those FIs facing serious cash crunch will use these measures. However, those BFIs seeking refinancing under this provision have to present their liquidity management plan to NRB.

The government has also asked institutional depositors not to withdraw their fixed deposits from B and C class financial institutions even after their maturity. It also decided to inject about Rs 5 billion from the pension fund in the market.

The central bank’s act of withdrawing its deposits from B and C class financial institutions also encouraged other institutional depositors to withdraw their matured deposits instead of renewing them. Liquidity crunch in Vibor Bikas Bank and People’s Finance was due to withdrawal of deposits by institutional depositors.

The reason behind these financial institutions suddenly succumbing to the acute cash crunch was their over reliance on institutional depositors. Vibor has already said that it will now go for retail deposits to reduce its dependency on institutional depositors.

Bankers feel that the measures so far taken by the government and the central bank are positive, but not enough. NIC Bank CEO Sashin Joshi said there should be a mechanism of providing refinancing to both troubled and healthy BFIs and those taking refinance from the central bank should not be considered bad.

Joshi also sought relaxation in realty loans by giving a chance to reschedule loans without maintaining provisioning. However, central bank believes that this is high time to sell land even if the profit is than expected. “Realty traders’ reluctance to sell land with low returns has hit the realty transaction,” said NRB Spokesperson Bhaskar Mani Gyawali.

Posted on: 2011-06-13 09:26

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