NRB ready to regulate EPF, CIT

Nepal Rastra Bank (NRB) on Wednesday communicated to the Finance Ministry that it could regulate the Employees Provident Fund (EPF) and the Citizens Investment Trust (CIT) in response to the ministry's request for its opinion. An NRB source said that the Finance Ministry had asked it about three months ago to regulate the two institutions which have remained unregulated despite huge resource mobilization.
According to Ramesh Bhattarai, administrator of EPF, it has mobilized about Rs. 80 billion. Similarly, the CIT has mobilized Rs. 16 billion. Both have remained self-regulated so far. According to the EPF, about 50 percent of its money has gone to contributors, 35 percent is in fixed deposits, 8 percent in government bonds and 5 percent in project loans. The CIT holds deposits of the general public and government employees. It provides certain benefits to the public by investing the money in corporate shares, debentures and government securities. An official at the ministry however said that there had been informal talks about regulating these institutions by the NRB.

The NRB official said that regulating the two institutions was simple given their simple form of transactions. "We can regulate them with separate directives, and we should not invest much effort for regulating them," he said. He, however, added that that the government should make the EPF and CIT boards decide to be regulated by the central bank to avoid any legal complications in the future. However, the EPF is not happy about having NRB as regulator. Bhattarai said that NRB was not the appropriate institution to regulate a social security institution like the EPF as the nature of financial institutions and EPF was completely different.

"Financial institutions invest for a short period, but we invest in long-term projects," he said. "NRB has prevented cross-holding for financial institutions, and preventing us from cross-holding may be problematic for us." He, however, added that the EPF would welcome the formation of a separate body to regulate the social security institution while admitting that they needed prudent regulation despite being self-regulated well.

He also said that without a change in the NRB Act or EPF Act, the central bank could not regulate the EPF as both acts lack a provision regarding the central bank's regulating them. "The EPF's board decision is not sufficient for NRB to regulate us," he added. However, CIT manager Sushil Aryal was supportive of the idea of the central bank regulating the CIT, but NRB should give different treatment to financial institutions and the CIT as their nature of work differed. Although the Citizen Investment Trust Act 1990 has provisioned that the CIT would have to comply NRB directions, there are no detailed provisions regarding how NRB should regulate it. The government had made a provision in the budget two years ago about letting the central bank regulate these two institutions, but it did not materialize. The ministry official said that the proposal went to the cabinet where it was cancelled.
Source:eKantipur