Kathmandu, June 8: Experts today voiced for the autonomy of the Nepal Rastra Bank (NRB) – the country’s central bank – to effectively push ahead the second round of financial sector reform. Financial sector reform is one of the major agenda of the government.
“There is a need to amend the NRB Act-1955 to make it a more effective regulatory and supervising authority in the changed economic context,” NRB’s former Governor Himalaya Shumsher Rana told an interaction programme on financial sector reform organised by NRB.
Rana said that the existing Act allowed the government to remove the governor at its discretion, adding the revised Act should see to this to ensure NRB’s autonomy.
Stressing the need to review the valuation and audit system, Rana called for bankruptcy policy, loan classification provision and an amendment in foreign exchange regulation. “Besides, NRB has to review the remuneration of the employees to enhance its efficiency.”
Rana appealed to the NRB to take measures without delay to check Nepal Bank Ltd. (NBL) and Rastriya Banijya Bank (RBB) from further deteriorating financially.
NBL and RBB – two big commercial banks of the country – are reportedly passing through a vulnerable situation due to huge bad loans.
Nepal Bangladesh Bank’s Managing Director Narendra Bhattarai said that NRB Act amendment should ensure its autonomy.
Bhattarai said the revised Act should establish NRB as a referee and see whether the players – the commercial banks and financial institutions – abide by the rules.
Nepal Arab Bank’s General Manager Shovan Dev Pant maintained that NRB also was responsible to NBL’s precarious situation as it failed in its role of supervisor and called for immediate steps to improve the bank’s financial performance.
“Just selling the shares to the private sector is not a remedy,” Pant said. “Strict regulation and supervision is a better solution.”
Showing reservations about NRB’s attitude to depend on the donors to carry out its duty, Pant said, “We should be action oriented and try to do our own work.”
The second round of financial sector reform should begin with NRB’s autonomy, Everest Bank’s Executive Director S. S. Bhandari said.
Bhandari called for guidelines to define the non-performing loans, adding there should be a provision requiring the commercial banks to regularly report to the central bank about their financial situation.
Bhandari said that the central bank had to inject capital to NBL and RBB to enhance their management and financial performance.
Former Governor Ganesh Bahadur Thapa stressed clarity in matter of the appointment of the asset valuators. “Besides the internal audit of the commercial banks has to carried out by the external team and the report submitted to the central bank.”
Earlier, NRB Deputy Governor Ram Babu Pant presented a paper on Financial Sector Reform Programme for Nepal. Pant’s paper stressed the need to enforce the internationally accepted standards of loan classification and provisioning requirements, liquidity and reserve requirement, capital adequacy requirement, exposure limits, and single borrower limits to reform the banking sector.
The paper also pointed out the need to restructure the state owned development banks, bring financial co-operatives under NRB’s supervisory domain, and ensure healthy growth of the finance companies and micro-finance institutions.
NRB Governor Dr. Tilak Rawal said that NRB would gradually enforce the internationally accepted prudential regulations for an effective and efficient banking system.