Nepal Bankers' Association Submits Comprehensive 21-Point Recommendations for Upcoming Monetary Policy
The Nepal Bankers' Association (NBA) has formally presented a comprehensive 21-point set of written recommendations to the Nepal Rastra Bank (NRB) for the upcoming monetary policy of the fiscal year 2083/84. These suggestions are strategically aimed at fostering a more conducive environment for credit flow, refining interest rate determination mechanisms, enhancing digital banking infrastructure, and ensuring overall financial stability within the Nepali banking sector.
The NBA's recommendations are broadly categorized into several key areas, reflecting the industry's priorities and challenges. Among the most significant proposals are those related to credit, interest rates, and sectoral investment. The association has called for a reduction in the mandatory deprived sector lending limit from the current 5% of total credit to 4%. This adjustment, they argue, is necessary to align with market demand and the practical realities of identifying eligible borrowers, potentially freeing up capital for other productive sectors while still ensuring support for vulnerable communities. Furthermore, the NBA advocates for the inclusion of health and education sectors within the NRB's designated priority lending areas, recognizing their critical importance for national development and offering new avenues for bank lending.
In a move towards greater market efficiency and risk management, the NBA has proposed the full implementation of risk-based pricing. This would allow banks to adjust premium rates based on a borrower's individual risk profile and prevailing market liquidity conditions, leading to fairer pricing and better allocation of credit. The association also seeks a review of the base rate calculation methodology, which despite being mentioned in past monetary policies, has not been fully implemented. Concurrently, they suggest introducing flexibility in loan loss provisioning, aligning it with international best practices to reflect a more accurate financial position of banks. To foster competition and encourage technological adoption, the NBA recommends that financial service charges be determined by open market competition rather than fixed regulatory limits.
Digital banking, technology, and security form another crucial pillar of the recommendations. Recognizing the pervasive use of digital platforms, the NBA proposes that 'in-app notifications' within mobile or internet banking applications be officially recognized as a valid communication medium, reducing reliance on SMS. To combat the rising tide of digital scams and fraud, they advocate for the establishment of a joint platform involving the police, banks, and other relevant bodies to enhance customer protection. The immediate implementation of a Central KYC (Know Your Customer) system is also urged for integrated customer identification and due diligence, streamlining processes and improving security. Moreover, the NBA calls for instant interoperability among various QR code operators to enhance customer convenience and promote seamless digital transactions. For trade facilitation, an integrated digital platform involving customs, NRB, and commercial banks for import-export related processes is also on the agenda.
From an institutional, operational, and financial management perspective, the NBA has put forth several practical suggestions. They seek eased policies for branch closures, particularly in sub-metropolitan and municipal areas with multiple branches, allowing banks greater operational flexibility. The association also proposes reducing the inactive account closure period from 10 years to 5 years and enabling customers to close accounts digitally, improving efficiency and customer experience. To encourage financial literacy initiatives, the NBA suggests that programs conducted through bank and financial institution associations be counted towards Corporate Social Responsibility (CSR) obligations. Furthermore, to stimulate investment in growth sectors, they recommend that banks' investments in Private Equity and Venture Capital funds, up to 5% of their capital fund, should not be subject to capital deduction. The ability for banks to lease out non-banking assets acquired through loan recovery is also proposed to generate revenue from otherwise idle assets. Other recommendations include establishing a secondary market for converting collateral into cash, allowing the use of Debenture Redemption Funds for bonus share issuance, and creating a permanent mechanism for policy clarity regarding NRB directives. Finally, the NBA suggests a review of the supervisory requirements related to Non-Performing Loans (NPL) and risk-weighted assets for banks seeking to open overseas branches, and proposes exempting a certain portion of INR positions from Net Open Position (NOP) calculations or increasing limits to fully utilize Non-Deliverable Forward (NDF) transactions.
These comprehensive recommendations underscore the banking sector's proactive approach to addressing current challenges and shaping a more robust, stable, and modern financial landscape in Nepal. The NRB's consideration of these points will be crucial in formulating a monetary policy that supports economic growth while maintaining financial sector health and stability.