NRB holds meeting with NBA, NIC Asia representativesThe Nepal Rastra Bank (NRB), the central bank, on Monday held an informal meeting with representatives of Nepal Bankers’ Association (NBA), the umbrella body of commercial banks, and NIC Asia Bank to resolve the ongoing fiasco over determination of returns on fixed and savings deposit.
The Nepal Rastra Bank (NRB), the central bank, on Monday held an informal meeting with representatives of Nepal Bankers’ Association (NBA), the umbrella body of commercial banks, and NIC Asia Bank to resolve the ongoing fiasco over determination of returns on fixed and savings deposit.
The meeting was attended by NBA President Gyanendra Dhungana, NIC Asia Bank board director Rajendra Aryal and NIC Asia Acting CEO Roshan Kumar Neupane, among others, according to NRB Spokesperson Narayan Prasad Paudel.
“The meeting was basically called to get an update on the ongoing [tussle] between NBA and NIC Asia. It was an informal meeting because the banking sector regulator doesn’t want to intervene in a matter related to private banks,” said Paudel, adding, “We’ve been told the matter would be resolved as early as Tuesday.”
NIC Asia Bank and the NBA are at odds after the NBA instructed commercial banks not to conduct any interbank transaction, including foreign exchange transaction, with the financial institution. The instruction was issued on Friday after NIC Asia raised deposit rates beyond the threshold set by the NBA.
The NBA had told all 28 commercial banks not to raise fixed deposit rate beyond 11 percent and savings deposit rate beyond 8 percent stating further hike in deposit rates would increase lending rates, preventing growth of the private sector as well as the economy.
Although all commercial banks had initially abided by the instruction, NIC Asia later started offering returns of up to 12 percent on fixed deposit and up to 10 percent on savings deposit. After the rates were revised upwards, remaining 27 banks stopped conducting interbank transaction with NIC Asia.
In a market economy, banks like NIC Asia should be free to fix deposit rates on their own. This right has been enshrined in the Banks and Financial Institutions Act. But the NBA decided to infringe on this right claiming “aggressive banking practices of NIC Asia were creating risks in the banking system”. This practice of imposing decision on other banks, according to many, has turned the NBA into a cartel.
“We are holding discussions with the NBA to resolve the problem. We do not want to prolong this issue as it would be detrimental for the growth of the financial sector,” Sudhir Nath Pandey, assistant CEO of NIC Asia, said. He, however, did not elaborate on how the problem could be resolved. “We are discussing various options. Hope we will find a common ground,” he said.