Kathmandu, 

The Confederation of Banks and Financial Institutions Nepal (CBFIN), umbrella organization commercial banks, development banks, and financial institutions, has presented a comprehensive 17-point proposal for consideration in the first-quarter monetary policy of the fiscal year 2023-24. The aim of these suggestions is to address critical financial and economic concerns while fostering sustainable growth.
Here is a condensed version of CBFIN’s recommendations:

Founder Shares Conversion: CBFIN suggests implementing provisions in the Bank and Financial Institutions Act (BAFIA) to gradually transform founder shares into common shares, facilitating capital creation and mobilization.

Dual Interest Rate System: CBFIN advocates for a dual interest rate system, proposing lower interest rates for loans in productive, employment, and export sectors to stimulate industrial growth, economic activity, and job creation.

Bank Rate Adjustment: Responding to the current economic situation, CBFIN recommends a 1% reduction in the existing bank rate of 7.5% to ease pressure on interest rates and support overall financial stability.

Postponement of Counter-Cyclical Buffer: Given the contraction in the banking sector, CBFIN suggests postponing the implementation of the 0.5% counter-cyclical buffer system scheduled for the end of June 2081.

Treatment of Short-Term Deposits: CBFIN proposes excluding deposits with a term shorter than 1 year from maturity calculations, emphasizing the impact on the expansion of long-term loans.

Net Liquidity Ratio: CBFIN suggests replacing the cash reserve ratio with a net liquidity ratio, offering more flexibility to banks and financial institutions.

Regulatory Retail Portfolio: CBFIN recommends raising the low-value individual criteria for calculating the regulatory retail portfolio from 1 crore to 2 crore.

Flexible Credit Expansion Targets: To achieve the 11.5% credit expansion target, CBFIN calls for more flexible arrangements in terms of capital adequacy, risk-bearing, and sectoral limits.

Re-Loan Facilities: CBFIN suggests creating arrangements for re-loan facilities to provide affordable loans targeting production-oriented, employment-oriented, export-oriented industries, and the hospitality sector.

Loan Loss Provision: CBFIN proposes maintaining a 1% loan loss provision for good loans.

NPA Limits: In response to the rise in bad loans, CBFIN recommends removing the provision that non-performing assets (NPAs) should not exceed 5% when taking deposits from Nepal Rastra Bank.

Non-Banking Property Transfer: CBFIN calls for a clear provision that non-banking property transferred to a bank’s name cannot be returned to a third party following existing laws.

Land Restriction Clarification: In cases where land revenues offices raise land restriction issues during property transfer, CBFIN proposes a provision, facilitated by Nepal Rastra Bank, stating that land restriction does not apply to banks and financial institutions.

Working Capital Loans: CBFIN recommends empowering banks to determine working capital loan limits and emphasizes the need for stakeholders’ involvement in refining guidelines for such loans.

Guarantor Blacklisting: CBFIN urges the immediate withdrawal of the provision regarding the blacklisting of guarantors, citing conflicts with existing laws.

Accrual Basis Taxation: CBFIN suggests amending the current system of showing interest income on an accrual basis and paying taxes accordingly, proposing a shift to reporting interest income on a cash basis.