Tight liquidity affected BFIs operations for long. Now we have a case of People´s Finance shutting down operations due to it. What is the NRB doing to prevent the situation from spreading further?
We have worked out new measures to ease liquidity. For instance, we have decided to continue maintaining our deposits, wherever they are, in the financial institutions (FIs). We are also easing provisions of refinancing, so that BFIs could find some breathing space from current liquidity crunch. The high-level committee headed by Finance Minister has also decided to instruct the institutional depositors not to withdraw their savings for the time being.
But will these measures work? After all, BFIs fundamentally grow and survive on ´public confidence´ and this confidence has waned sharply of late.
The troubles seen in the financial system presently is not due to solvency (or insolvency) of the institutions, but due to liquidity crunch. Hence, we believe these measures will work.
And what about the waning public confidence? What has NRB done to boost public confidence?
Our safety nets are not strong. That is why depositors turn panic instantly. But there is no need for depositors to panic or mistrust the institutions. BFIs in general (except a few cases where chief executive and promoters acted arbitrarily) are in a good shape. We have repeatedly disseminated this information through mass media. Besides, BFIs have sound assets back up and we are here to make sure that people get back their savings even if they go bust.
Apart from that, we have made insurance of deposits up to Rs 200,000 mandatory for all FIs. More than 75 percent of FIs have complied. This means deposits up to Rs 200,000 in those FIs are safe.
What is the central bank´s preparedness to make sure that current spate of liquidity crisis does not leave systemic impact in the financial sector?
We are closely assessing the system as a whole. We have a committee that is constantly monitoring the impact of recent cases of actions taken against FIs and closure of People´s Finance in the overall health of system. Various taskforces are individually monitoring situations in the troubled units. We are prepared to take strong actions in case of mishaps. But we do not think such a situation is likely.
Financial institutions of late have shown tendency to shut down operations and surrender to NRB without prior notice, leaving customers in lurch. This was seen first in case of Gurkha Development Bank, then in Nepal Share Market Finance and now in People´s Finance. Why is the central bank doing nothing to make the institutions accountable to depositors?
I think they are taking such steps as it makes them easier to manage their situation. We have not acted strongly against such action mainly considering the possible confrontation and damages that could surface in the institutions. However, we will not remain blind to such acts always. It is the duty of the management to face the customers, apprise them of the situation and convince them. This will prove crucial in preventing erosion of public confidence as well. We have never allowed the financial institutions to continue closing their services. Gurkha Development Bank is paying its depositors back and Nepal Share Market too has resumed customer services. We will ask People´s Finance to start transactions soon.
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