Lower CRR by one percentage point: Banks

Nepal Bankers´ Association (NBA), an umbrella organization of commercial banks, has officially asked the central bank to lower the Cash Reserve Ratio (CRR) -- mandatory cash deposit that banks have to maintain at the central bank -- by one percentage point to 4.5 percent.

In its recommendations handed over to the NRB for the Monetary Policy for the next fiscal year, NBA has argued that lowering the CRR rate by at least one percentage point is necessary to deal with the ongoing ´mild´ liquidity shortage, which is continuously fueling both deposit and lending rates in recent months.

The monetary policy unveiled last year had raised CRR on local currency deposits to 5.5 per cent from 5 per cent.According to estimates, if the upcoming monetary policy incorporated NBA´s demand, it will release around Rs 4 billion worth of liquidity into the market.

An NBA board member told Republica that the association has recommended the central bank to review its liberal licensing policy, as raising the number of financial institutions without strengthening of supervision and inspection capacity of the NRB might lead toward crisis.

"The present policy of issuing license to run a financial institution just because someone has the capital shouldn´t be continued," said the official.

Likewise, the NBA has also urged the central bank to increase foreign currency exchange facility to Nepali people visiting abroad from existing US$ 2,000 to US$ 5,000 per visit. It has also suggested raising the foreign exchange facility to US$ 50,000 for those who wish to migrate to foreign country. Such facility at present is US$ 10,000 per family.

The NBA has also sought changes in the NRB´s existing policy regarding opening new branches of commercial banks. The present policy of allowing a new branch inside the Kathmandu Valley upon opening a branch outside the Valley has no meaning and it should be scraped, he said.

The NBA also wants the NRB to allow banks to open extension counters, which can significantly lower the cost of operating branches without compromising with quality of basic banking services. At present, the central bank allows banks to open such counters in hospitals only.

Similarly, the bankers´ umbrella organization has also suggested lowering the present three percent SLF penal rate to something around one percent. "Three percent penal rate is too high at the time of liquidity crisis," said the official.

The NBA has recommended that the NRB take policy decision to make all the transactions worth over five million rupees through banking channel.
Source
myrepublica.com