In a move that could cheer customers but annoy banks, the Nepal Rastra Bank (NRB) is planning to prohibit banks and financial institutions from charging service fees to customers.

In a draft directive named “Protection of Financial Customers and Financial Literacy Related Provision”, the central bank has said BFIs cannot charge any fee for the payment of loans earlier than schedule and for a number of other services such as opening/closing deposit accounts, and taking bank statement.

As per the proposed directive, BFIs will be barred from charging fee for any-branch-banking service (ABBS), for confirming deposit in the account, and for “renewal of debit and credit cards” before the stated date of expiry. In the case of services other than these, the BFIs should pre-inform the customers about the fees.  The proposed directive has also barred BFIs from taking any charge for reactivating inactive accounts. Even if the deposit is less than required, no charges can be imposed on such accounts and deduct from the deposit.

While the central bank has been maintaining it has been necessary to control such “unwanted charges”, bankers are not happy with the central bank’s move.

A member of Nepal Bankers’ Association said the move is a continuation of the central bank tightening screw on banks, which will not yield good result. “The service charge we are taking is one of the lowest in the world,” said the banker. “If we are denied even to charge so low for some much investment we make for the services, the quality of the services will definitely be affected,” he said.

The move has further miffed the bankers, who were already annoyed by the central bank’s directive that they have to maintain spread rate between interest on deposit and credit at 5 percent.

The central bank has already directed the BFIs to maintain the difference of interest rates on different types of deposit accounts not more than 2 percent. “The interest rate should not be differed based on the category of depositors having similar bank accounts,” states the proposed directive. The directive has also barred BFIs from charging extra fee while making available services through other institutions. For example, while receiving credit history of customers from Credit Information Bureau, blacklisting, removing from blacklist, fee for various card services, fee charged for collateral valuation and insurance premium, BFIs cannot charge additional fee on the actual service provider charges.

The BFIs also cannot charge fee when money is deposited through financial instruments such as cheque, bill and pay order, among others. If a cheque cannot be deposited due to inadequate amount at the account of the issuer, BFIs cannot charge any fee to depositors coming with the cheque. When BFIs need to change fee structure, interest rate and conditions of negotiated agreements, the customers should be first informed about it.

BFIs have to ensure that secrecy of customers’ business information must be adequately maintained while doing financial transactions. Information regarding transaction details and accounting should not be made available to unrelated persons. “It, however, does not bar providing information to the authorised bodies,” it states.

As per the proposed directive, the BFIs should prepare a small booklet of information on different types of accounts, credit and financial instruments. The customers should be informed clearly about different types of accounts, service charges, processes and working procedure, procedures of closing account and the method of calculating interest rates.

The customers should also be informed about the fees for payments earlier than schedule for loanees, delay charge, actions to be taken by BFIs when borrowers do not pay loans on time, working procedures regarding operation of various electronic cards and penalty and fines while doing banking transactions. The BFIs must have documents to be used in banking transactions essentially in Nepali language, but the proposed directive has not stopped doing transactions with documents written in English language for both internal and international transactions.