It also urged the central bank and the government to tackle the problem sensitively, particularly as unnecessary words of alarm could turn the market jittery, further eroding confidence of depositors. At the same time, the committee also directed the NRB not to stop action against banks and financial institutions (BFIs) that are flouting banking rules and risking depositors´ money.[break]
“The situation in the market is volatile. But that should not serve as a reason to allow wrongdoers walk away scot free,” said lawmaker Dr Tilak Rawal, who is also a former governor of NRB.
Lawmakers blamed the current spate of financial turmoil to liquidity crunch and held the central bank´s decision to withdraw deposits from financial institutions responsible for deepening the liquidity crunch. They also asked the central bank to open all available windows to ease liquidity in troubled institutions.
“We have also instructed the central bank to step up its supervision and insure all deposits to prevent recurrence of similar financial turmoil in the future,” said Sushila Kandangwa, chairman of the committee.
The committee that grilled the Finance Secretary Krishnahari Baskota and NRB Governor Dr Yuba Raj Khatiwada on instability seen in the financial sector, however, lauded the initiatives taken by the central bank so far.
Particularly, they appreciated the central bank for instantly responding to liquidity-strapped Vibor Bikas Bank´s need by providing loans under ´lender of last resort´ and also opening the special refinancing facility for liquidity management.
“These are good initial steps, but they will not suffice. The central bank should be prepared for all possible circumstances and come up with concrete map on how it plans to handle the situation,” said Dr Rawal.
The committee also instructed the central bank to adopt necessary policies and programs to uphold financial discipline and transparency in the financial system.
“The central bank must identify financial institutions where promoters and management are acting notoriously and take action against them accordingly,” said Nepali Congress lawmaker Dr Ram Sharan Mahat.
At the same time, he added that the central bank should extend its supporting hand to the institutions that are genuinely in trouble solely due to liquidity crunch.
While attributing current liquidity crunch to downturn business confidence and poor capital spending, CPN-UML lawmaker Binod Kumar Chaudhary urged the government to come up with fiscal budget on time.
He also pressed the government for serious implementation of programs aimed at promoting exports and industries.
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