Banks and financial institutions will have to spend at least Rs680 million on staff training this fiscal year, as the banking sector regulator has made it mandatory for all banking institutions to invest at least 3 percent of gross annual staff expenses on employee training and capacity development every year.

The fund for employee training and capacity development must be allocated on an annual basis based on staff expenses of the previous fiscal year, says a circular issued on Tuesday by the Nepal Rastra Bank (NRB), the banking sector regulator.

Employee expenses of banks and financial institutions stood at Rs22.7 billion in the last fiscal year, show the NRB data. Based on this outlay, it could be said Class ‘A’, ‘B’ and ‘C’ financial institutions will need to spend at least Rs681.5 million on staff training and capacity development in the current fiscal year.

If in any case, banks and financial institutions are not able to spend this amount within the end of this fiscal year, they will have to create employee capacity development fund where savings need to be parked, says the circular. The savings will then have to be used in fiscal year 2017-18 for staff training and capacity development.

“This is a historical decision for the country’s banking sector, as training and orientation programmes will reduce operational risks at banks and financial institutions, promote innovation, and increase productivity as well as profitability,” said Sanjib Subba, CEO of National Banking Institute, a national level apex banking and finance academy.

People like Subba have long been advocating for greater spending in human resources stating such expenditure will enable employees to make prudent decisions, which will ultimately strengthen financial health of banks and financial institutions, and ensure financial stability.

Yet the spectre of short-term profitability has blinded many banking institutions in the country, restricting average spending on employee training and capacity development to less than a percent of total employee expenditure.

Many say low investment on human asset development is one of the reasons that lures employees to collude with outsiders to engage in fraudulent activities.

“From now onwards all employees of banks and financial institutions must get equal opportunity to take part in training and capacity development programmes,” says the NRB circular, adding, “Expenses made by chairpersons, board directors and CEOs while attending conferences and seminars abroad should not be enrolled as training and capacity development cost.”

In this regard, the board of banking institutions should introduce a guideline on human capacity development and submit it to the NRB, adds the circular.

Banks and financial institutions should submit similar guideline on promoter

teaching programme should to the NRB.

The guideline, according to the circular, should make it mandatory for new board directors, who have joined banks and financial institutions, to undergo orientation on nature of institution’s business, corporate governance and strategy, business plan of the institution, responsibilities of directors, strategies adopted by the institution to manage risk, economic and financial outlook, existing legal provisions, and banking services available in the market.

BFIs should also offer orientation and refreshment courses to board directors on transparency, disclosure, conflict of interest, compliance and international best practices once a year to strengthen corporate governance and risk management, adds the circular.

“This initiative taken by the NRB to enhance capacity of board members is also commendable, as it would help in improving the governance at banks and financial institutions,” said Subba. “The banking sector would start seeing positive results of initiative taken by the central bank to develop human capacity in the next five years.”

NRB caps microfinance lending rate at 18pc

KATHMANDU: The Nepal Rastra Bank (NRB), the banking sector regulator, has barred microfinance institutions from extending loans to borrowers at interest rate of over 18 percent per annum. 

Issuing a directive on Tuesday, the NRB said Class ‘D’ financial institutions can add up to 4 percentage points as administrative cost and up to seven percentage points as profit margin to its cost of fund to fix the lending rate. 

“But such lending rate should not exceed 18 percent per annum,” says the directive, adding, “If credit rates of microfinance institutions currently stand at over 18 percent, adjustments should be made within mid-July 2017.” Cost of fund is the average cost borne by institutions to mobilise savings from members of institutions, collect deposits from depositors, and acquire loans from other institutions. (PR)