The NRB suggests new regulations that would let cooperatives to get bank loans

New rules allowing cooperatives to mobilize savings and loans surpassing Rs 250 million annually will be implemented by Nepal Rastra Bank (NRB).

The NRB has created a draft of the guidelines titled “Directives and Standards for Savings and Credit Cooperatives” in this regard and has requested public input by the end of January.

The proposed directive aims to address a number of topics, such as capital fund laws, lending limits, financial resource mobilization, and member protection measures put in place by cooperatives. Cooperatives will be subject to additional limitations on the amount they can consider for deposit collection if the directive is approved in its current form.

Cooperatives would be allowed to take deposits up to Rs 5 million per person, depending on their operational scope, and up to Rs 1 million. Within two years after the directive’s implementation date, any savings that exceed the specified threshold must be modified.

The NRB has been unwilling to take the lead in regulating the cooperatives sector, despite long-standing demands from stakeholders for the nation’s central bank to do so. After many cooperatives had financial difficulties, the central bank has finally agreed to write and implement legislation for the cooperatives.

According to the draft guideline, cooperatives must maintain a minimum amount of liquid assets and disclose the source of savings surpassing Rs 1 million. If two other members guarantee the loan, cooperatives can lend up to five times a member’s savings without requiring collateral. Based on primary capital, a lending ceiling of 15% per member has been established.

Large cooperatives are required to allocate a minimum of half of their total loan proceeds to business, industry, and agriculture. Additionally, only the borrower or their immediate family may be used as collateral for loans. Additionally, cooperatives will need to categorize loans as either active or non-performing, with non-performing loan provisions ranging from 1% to 100%.

The interest rate differential between savings and loans will also be limited by the NRB at no more than 6%. Although monthly modifications based on the NRB’s reference rate are necessary, cooperatives must apply interest rates as decided by their boards. Additionally, the guidelines restrict directors to two consecutive terms and forbid family members from holding numerous roles within the same cooperative.

The new rules are intended to improve the cooperative sector’s risk management, accountability, and openness. Nonetheless, it contemplates enabling cooperatives to obtain bank loans. Up to 5% of their total assets or 1% of the capital fund, whichever is smaller, may be credited to the cooperatives.