Kathmandu, Dec 22: The Nepal Rastra Bank (NRB) has issued a comprehensive directive, “Directive for Cooperative Banks, 2082,” tightening regulations for cooperative banks operating under limited banking licenses. The directive, enforced from Sunday by the Bank and Financial Institutions Regulation Department under Section 79 of the Nepal Rastra Bank Act, 2058, sets stricter capital, governance, and operational standards for these banks.
Under the new rules, cooperative banks must maintain a minimum paid-up capital of NPR 250 million. They are required to maintain a primary capital of 4 percent and a total capital fund of 8 percent of their risk-weighted assets. Banks failing to meet these thresholds will be barred from declaring cash dividends or bonus shares. The central bank emphasized that these measures aim to strengthen financial health and governance, with penalties and dividend freezes for non-compliance.
The directive applies only to cooperative banks conducting wholesale or limited banking operations, such as national cooperative banks. Loan classification rules now require banks to categorize loans into four types based on overdue periods: good loans (up to 3 months overdue, 1% loss provision), substandard (3–6 months, 25%), doubtful (6 months–1 year, 50%), and bad loans (over 1 year, 100%).
Liquidity and interest rate norms are strict. Banks must maintain at least 2 percent cash reserve (CRR), 4 percent statutory liquidity ratio (SLR), and 20 percent total liquid assets. The interest rate spread between deposits and loans must not exceed 6 percent.
New branch openings require prior approval from the central bank. Investments in shares or debentures of organized institutions are prohibited, though government securities and central bank bonds are allowed.
Governance rules require a board of up to nine directors, with at least 33 percent women and two independent directors (one banking, one cooperative expert). Family members cannot simultaneously hold director and executive positions.
Loan limits have also been capped. Loans to a single member or related members cannot exceed 15 percent of total assets or 20 percent of total paid-up shares of the previous quarter, whichever is lower. Without collateral approval, banks can grant unsecured loans up to NPR 2.5 million, with small loans capped at NPR 500,000 for members only. Project loans cannot exceed 80 percent of project value, and loans against member savings are capped at 90 percent.
Real estate lending is limited to 10 percent of total loans, and combined real estate and residential loans to 25 percent. Any loan exceeding the prescribed limits must have 100 percent loss provisioning to cover concentrated risks.
These sweeping measures signal the central bank’s commitment to stricter supervision and stronger governance for cooperative banks.
People’s News Monitoring Service
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