Central bank to tighten screws on savings and credit cooperatives.
KATHMANDU, JANUARY 14 :The Nepal Rastra Bank has prepared a separate draft directive and standards for the regulation of savings and credit cooperatives. Similar to banks, the central bank has designed this draft to impose strict regulations on cooperatives.The central bank has proposed that cooperatives must ensure 100% loan loss on unsecured loans. When classifying loans, a minimum loan loss provision is required, with good loans at 1%, substandard at 25%, doubtful at 50%, and bad loans at 100%.
Additionally, it is proposed that the interest rate differential between loans and deposits should be maintained at 6%. Cooperatives with a single district jurisdiction will have a savings limit of ten lakh rupees, while those with jurisdiction in more than one district will have a limit of twenty-five lakh rupees, and those operating in more than one province will have a limit of fifty lakh rupees. Loans that exceed one year without repayment will be classified as bad debts, and transactions over ten lakh rupees will require mandatory source disclosure.
Furthermore, the draft stipulates that cooperatives can only provide up to 90% of total deposits as loans, cannot conduct transactions outside their membership, and are prohibited from investing in shares or real estate except for government bonds.The draft also mentions that individuals who have been members for less than three months cannot receive loan investments. Cooperatives may issue unsecured loans up to five times a member's savings or a maximum of three lakh rupees, whichever is lower. When issuing unsecured loans, at least two members must act as guarantors. Directors are not allowed to take any additional loans beyond what is secured by their savings.
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