KATHMANDU, APR 28 -
Nepal Rastra Bank (NRB) Governor Yubaraj Khatiwada said on Sunday that
the central bank was forced to impose a cap on the spread rate since the
market failed to correct the huge gap between interest rates of deposit
and credit.
The central bank has asked the bank financial institutions (BFIs) to
bring down their spread rate to below 5 percent within current fiscal
year. As of mid-March, the spread rate is 6.7 percent.
On the other hand, international institutions including World Bank and
International Monetary Fund have shown concerns over the cap on spread
rate claiming that it could affect BFIs profitability and capability to
withstand shocks.
The bankers have long been demanding to either scrap the cap on spread
rate or revise the formulate set by the central bank by allowing to
include administrative costs in the spread rate.
However, the governor, during the 59th anniversary of the NRB, was firm
on his stance that the central bank should take appropriate decisions
when the market itself fails to do so. Given that the base rate has been
reduced, the governor said that the interest rate on credit should also
go down. As of mid-March, the average base rate is 8.6 percent.
According to the central bank, the Financial Sector Assessment
Programme (FSAP) that aimed to assess the exact status of financial
sector has been completed. “Various recommendations have been made but
we will only look at practical alternatives and discard the old ones,”
added the governor.
The governor informed that the central bank, with the financial and
technical support from the Department for International Development in
UK, has started a special supervision of 54 banks and financial
institutions under the Development Policy Credit of the government.
Khatiwada also mentioned about the preparations to introduce new NRB
Act and Bank and Financial Institution Act. The central bank has already
presented the revised draft of the new NRB Act to the government, he
said. The central bank stated that the existing Act is not adequate to
address the current challenge of the financial sector, requiring a
change. The central bank has particularly sought the right to liquidate
crisis ridden banks and financial institution for itself through
revisions in the Act. “We are also drafting a new BAFIA,” said the
governor.
Speaking at the programme, former NRB Governor Bijaya Nath Bhattarai
stressed on the need for an effective role of the central bank to
minimize risks in the financial sectors citing the growing use of modern
technology in the banking sector.
Residence for guv
Kathmandu
: Nepal Rastra Bank has planned to construct residential buildings for
the governor and deputy governors in Thimi, Bhaktapur similar to that of
the prime minster and ministers. The central bank also intents to
reconstruct its office in Thapathali, Kathmandu , according to the governor.
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