NRB tightens minimum reserve rules for banks

NRB tightens minimum reserve rules for banks
eKantipur, 22-Oct-08

In a bid to get sufficient capital reserves in registered banks and financial institutions and to ensure financial stability, Nepal Rastra Bank, the central bank, has enforced Prompt Corrective Action (PCA) with effect from Oct. 17.

NRB said in a statement Wednesday that any bank or financial institution under category 'A', 'B' or 'C' will immediately be punished as per the existing law if it is not found to be maintaining the capital adequacy ratio fixed by the regulator.

The central bank said it will prevent the concerned banks and financial institutions from declaring dividends and bonus shares if their minimum capital ratios are found to be up to two percentage points less than the required ratio.

Similarly if the capital reserves are found to be between 2 and 4 percentage points less than the specified limit, the central bank would impose a cap on the amount of loans to be issued by those banks and financial institutions.

For those banks and financial institutions whose minimum capital adequacy ratios are less by 4 to 6 percentage points than the level fixed by the regulator, then they will be restricted from opening new deposit accounts and issuing additional loans, NRB said.

Similarly, NRB can bar the concerned banks and financial institutions from increasing salaries and benefits of employees, recruiting additional workforce as well as promoting staff in case the capital reserves maintained by them are found to be 6 to 8 percentage points less than the minimum capital reserve ratio.

Under the new action, NRB will declare banks and financial institutions troubled, if their capital reserve is found to be 8 percentage points or more, less than the capital reserve ratio fixed by NRB.

The central bank will initiate the process of revoking licenses and liquidation of those banks and financial institutions if they fail to increase the capital reserves to the required level within six month of the date they were declared troubled, said the central bank.