Govt to cap deposit, lending of co-ops

THE government is planning to impose ceiling on both deposit mobilisation and credit disbursement of cooperatives amid fears that huge deposits in the relatively unregulated sector could pose serious risks to the public money. As per the proposed amendment to the Cooperative Regulation, cooperatives cannot collect deposits more than 10 times of an individual depositor’s share ownership. And, lending cannot be made more than 10 times of the capital fund to a single member. Deposit collection and lending outside the members have also been banned. However, the maximum deposit collection from a member should not exceed Rs 3 million, according to the proposed regulation which has been sent to the Cabinet for approval. “Cooperatives that already have individual deposits exceeding Rs 3 million will have to bring down to the fixed level within six months from the date of implementation of amended regulation,” states proposed regulation. The strict measures have been proposed as per the suggestions of two taskforces headed by Nepal Rastra Bank Deputy Governor Maha Prasad Adhikari and Finance Ministry Joint Secretary Baikuntha Aryal. Both the committees had suggested fixing a ceiling on deposits and making strong provisions of actions amid risks in the sector due to weak legal provision and lack of proper supervision. The proposed regulation has provisioned that depositors will have to disclose their income source if the money to be deposited exceeds Rs 1 million as a part of controlling antimoney laundering activities through cooperatives. The cooperatives have also been barred from accepting fixed deposits having more than three years’ maturity period. However, the maturity period threshold is not applicable for cooperatives that have received the central bank’s approval. Department of Cooperatives (DoC) Registrar Kedar Neupane said the cap on deposit and lending has been planned to manage the uncontrolled financial transactions at cooperatives. “As the Cooperative Act-1992 talks on only about allowing financial transactions in small amounts, the regulation is being brought just to control the volume,” he said. Cooperatives associations, however, termed the new provision “appropriate” as it would discourage people, especially those from rural areas, to save their money in cooperatives. “The provision will compel remittance recipients and people with high income to rush to banks in urban areas to save their money,” said Rishi Raj Ghimire, vice-president of Nepal Federation of Saving and Credit Union. As far as lending is concerned, cooperative members have been barred from taking new loans until the old liability is settled,” states the proposed regulation. The cooperatives have also been barred from providing loans or overdrafts against share collateral. The new regulation also asks cooperatives to maintain necessary risk management fund. They have been asked to categorize loans into three categories — good, suspicious and bad — based on the duration of non-repayment, and deposit 1 percent, 35 percent and cent percent, respectively, in the risk management fund based on the category of loans. Loans not exceeding the repayment date will be categorised as good loans, those not paid within one year after the expiration of the deadline as suspicious loans, and loans not paid one year after the deadline expiry will be considered bad loans. The cooperatives will have to lend 75 percent of their loans to the productive sector. They have also been told to keep the average spread rate of interests at not more than 6 percent. The difference between interest rates on different deposit and loan products should not be more than 3 percent. The proposed regulation has also empowered the DoC to take stringent action against cooperatives failing to adhere to the directives. It has been authorised to declare cooperatives crisis ridden for poor financial health as well as take control of the management of troubled cooperatives. The DoC registrar has been authorised to stop financial transactions of cooperatives, freeze bank accounts of cooperatives, write to the authorities concerned to scrap passports of board directors and employees, and prevent those responsible for creating trouble in cooperatives from leaving certain places without permission. The registrar can also write to the authorities concerned to freeze bank accounts and fixed property of directors, managers and their family members and blacklist those not paying the loans. Registrar Neupane said they would grant a number of opportunities to cooperatives to correct their status before taking any action. Ceiling on individual deposit fixed at Rs 3m Lending not more than 10 times of capital fund No further lending without old loan settlement Mandatory 75pc lending to productive sector Spread rate of interests fixed at 6pc Regulator can declare cooperatives crisis ridden and take control of management Registrar can stop financial transactions and freeze bank accounts of cooperatives and scrap passport of board directors and employees