Nepal Rastra Bank (NRB) has set age bar for Chief Executive Officers and Board Directors for bank and financial institutions (BFIs). Issuing a circular to the BFIs on August 5, the Central Bank told them to implement a new rule that has set age bar of 65 years for the CEO to get appointment or reappointment. According to the new rule, the CEO will not be allowed to continue to work in any bank or financial institution after crossing the age of 69. Similarly, age limit for Board Director has been set at 70 years. However, the Board Director will not be allowed to continue in the same capacity after crossing the age of 75. However, the circular has not made it clear whether the age bar will affect those who have already got the appointment.
The Central Bank issued a new circular to the BFIs to implement the provisions that it has brought in the monetary policy for fiscal year 2019/20. Among others, the new circular requires commercial banks to lower their average interest rates spread below 4.4% by mid-July next year. The maximum difference between the average interest rates on loans and deposits was capped at 4.5% earlier.
However, commercial banks that go for merger and acquisition and start joint operation by mid-July next year will get a relaxation on the deadline for meeting the interest rates spread cap. The deadline for such banks has been extended by a year with an aim to encourage ‘big merger’.
The circular has also lowered the maximum limit that a BFI can collect deposits from a single institutional investor. Now, a BFI will not be allowed to mobilise more than 10% of deposits from a firm, company or organised institution, down from earlier ceiling of 15%. While reducing the general refinance rate for bank loans to small and medium enterprises, it has also lowered the maximum interest rates that BFIs can charge from them. Under the new arrangement, the central bank will provide refinance facility for loans up to Rs 1 million to BFIs at 3%. Banks are not allowed to charge more than 7% interest rates for loans floated under refinance facility. Earlier, such refinance rate was 5% while the ceiling on lending rate was 10%.
The new provision announced in the monetary policy requires commercial banks to float debentures equivalent to at least 25% of their paid-up capital by mid-July 2020 has also been introduced as the requirement in the circular. Banks failing to abide by the new requirement will face actions like a ban on the expansion of their branches and no refinance facility.
Similarly, BFIs will not be allowed to charge more than 2 percentage points in premium on their base rate as interest rates on loans up to Rs 1.5 million on agricultural, entrepreneurial and business promotion. The central bank has also allowed banks to float loans against the collateral of arable land even without road access. The central bank has made it mandatory for BFIs to provide decision about such loans within seven days with clear reasons.
