Central bank eases SLR

In yet another move to provide relief to banks and financial institutions (BFIs), the Nepal Rastra Bank (NRB) has allowed them to count even deposits remaining in ATM machines to meet the statutory liquidity ratio (SLR).

SLR is the amount that BFIs are required to maintain in the form of cash or gold or government approved securities before providing credit to customers. It is determined and maintained by the central bank to control the expansion of bank credits. NRB has fixed SLR at 15 percent of total deposits.

Given the banking sector facing difficulty to maintain SLR level amid liquidity crunch, this relaxation is expected to provide much-needed relief to BFIs. Now, BFIs will be in a more comfortable position to expand their lending. Commercial banks have estimated Rs 1.5 billion worth of reserves in ATMs every day. It means BFIs can make additional lending. A bank puts an estimated Rs 200,000 in an ATM every day.

 “The relaxation in SLR will provide relief to banks facing liquidity crunch,” said an NRB source. All commercial banks of the country have ATM service. Private sector banks have the largest ATM network.

Meanwhile, issuing a circular, NRB has barred BFI chairmen from holding executive powers. The central bank made such a provision after most of the financial institutions that landed in trouble had executive chairmen. ”All BFIs that landed in trouble have executive chairmen,” said an NRB source. “That’s why we scrapped the provision of executive chairman.”

“Allowing a bank chairman to hold executive powers is inappropriate in terms of maintaining good corporate governance and internal control,” states amended directive. The central bank has also discouraged the tendency of chief executives to run financial institutions, whose head offices are located in other districts, from the Capital. “Chief executives must serve his duty from the head or corporate office without going elsewhere, except for official purpose,” read the directive.

The central bank has also barred cooperatives from investing in promoter shares of BFIs.