Nepal Bankers’ Association (NBA), the umbrella body of commercial banks,
has expressed reservations on some of the provisions included in the
Financial Literacy and Consumer Interest Protection Directive issued
recently by Nepal Rastra Bank (NRB), central bank.
On December 26, NRB issued the directive, which barred banks and financial institutions (BFIs) from obtaining certain fees from customers and put a cap on collection of certain fees.
The directive was issued following complaints that BFIs were obtaining huge amounts from customers even when providing basic services like printing copies of bank statements.
“We appreciate the move made by the central bank to protect the interest of consumers. NBA also believes that BFIs should not be allowed to overcharge customers,” NBA Member and CEO of Sanima Bank Bhuvan Kumar Dahal said. “Yet, we have reservations on some of the provisions incorporated in directive.”
The first concern raised by NBA is on collection of fee from customers availing any branch banking service (ABBS). Using ABBS, a depositor, who has an account in, say, Kathmandu branch of a bank, can withdraw or deposit amount from any branch of the institution throughout the country, including those located in rural areas. Such services are provided by obtaining a fee of about 0.1 per cent per transaction from customers.
But with the introduction of the latest NRB directive, banks cannot charge customers using ABBS.
“We know NRB is trying to protect the interest of small depositors, and we are willing to waive this fee on withdrawals of small deposits. But we cannot extend the service for free on deposits of bigger sizes because of cost, as well as risk, involved in moving funds to branches that are not actively doing business,” said Dahal.
In a letter written to NRB, the NBA has said banks can waive ABBS fee on withdrawal of deposits of up to
Rs 5,000. “Banks may even be willing to raise that amount and offer ABBS for free on withdrawals of Rs 10,000 to Rs 20,000. But if withdrawals exceed that, we should be allowed to charge nominal amount,” said Dahal.
The second concern raised by NBA is on loan management fee, which according to NRB directive, should not vary by more than 0.25 per cent among loans extended to different borrowers.
Currently, banks are charging borrowers a loan management fee of around one to two per cent. This means, borrowers who get a loan of, say, Rs 100,000 have to pay a fee of Rs 1,000 to Rs 2,000, while borrowers who obtain a credit of, say, Rs 10 million have to pay a fee of Rs 100,000 to Rs 200,000.
Such fees are collected to make up for costs involved in extension of loans, which includes visiting sites, valuating assets pledged as collateral, document processing and completing other administrative works.
“Since the cost involved in completing these tasks is same for big and small loans, we usually offer a discount to big borrowers and charge loan management fee of around 0.5 per cent of the credit amount. This is to ensure big borrowers do not end up paying quite a big amount in loan management fee,” Dahal explained.
“But with the introduction of the latest directive, we cannot afford to extend such discounts to big borrowers as it would breach the 0.25 per cent ceiling fixed by NRB.”
One way to address this problem is by offering similar discount to small borrowers, which will ultimately reduce their cost of doing business. But Dahal said banks cannot afford do so because ‘we cannot recover costs that went into completing various processes prior to extending loan to small borrowers’. Another concern is on ban to collect renewal fee from users of rupee-denominated electronic cards like ATM, debit and credit cards.
“This rule will compel us to collect higher fees when issuing cards as we won’t be able to collect any extra fee till card expires,” Dahal said.
source:the himalayan times,11 jan 2015
LINK
On December 26, NRB issued the directive, which barred banks and financial institutions (BFIs) from obtaining certain fees from customers and put a cap on collection of certain fees.
The directive was issued following complaints that BFIs were obtaining huge amounts from customers even when providing basic services like printing copies of bank statements.
“We appreciate the move made by the central bank to protect the interest of consumers. NBA also believes that BFIs should not be allowed to overcharge customers,” NBA Member and CEO of Sanima Bank Bhuvan Kumar Dahal said. “Yet, we have reservations on some of the provisions incorporated in directive.”
The first concern raised by NBA is on collection of fee from customers availing any branch banking service (ABBS). Using ABBS, a depositor, who has an account in, say, Kathmandu branch of a bank, can withdraw or deposit amount from any branch of the institution throughout the country, including those located in rural areas. Such services are provided by obtaining a fee of about 0.1 per cent per transaction from customers.
But with the introduction of the latest NRB directive, banks cannot charge customers using ABBS.
“We know NRB is trying to protect the interest of small depositors, and we are willing to waive this fee on withdrawals of small deposits. But we cannot extend the service for free on deposits of bigger sizes because of cost, as well as risk, involved in moving funds to branches that are not actively doing business,” said Dahal.
In a letter written to NRB, the NBA has said banks can waive ABBS fee on withdrawal of deposits of up to
Rs 5,000. “Banks may even be willing to raise that amount and offer ABBS for free on withdrawals of Rs 10,000 to Rs 20,000. But if withdrawals exceed that, we should be allowed to charge nominal amount,” said Dahal.
The second concern raised by NBA is on loan management fee, which according to NRB directive, should not vary by more than 0.25 per cent among loans extended to different borrowers.
Currently, banks are charging borrowers a loan management fee of around one to two per cent. This means, borrowers who get a loan of, say, Rs 100,000 have to pay a fee of Rs 1,000 to Rs 2,000, while borrowers who obtain a credit of, say, Rs 10 million have to pay a fee of Rs 100,000 to Rs 200,000.
Such fees are collected to make up for costs involved in extension of loans, which includes visiting sites, valuating assets pledged as collateral, document processing and completing other administrative works.
“Since the cost involved in completing these tasks is same for big and small loans, we usually offer a discount to big borrowers and charge loan management fee of around 0.5 per cent of the credit amount. This is to ensure big borrowers do not end up paying quite a big amount in loan management fee,” Dahal explained.
“But with the introduction of the latest directive, we cannot afford to extend such discounts to big borrowers as it would breach the 0.25 per cent ceiling fixed by NRB.”
One way to address this problem is by offering similar discount to small borrowers, which will ultimately reduce their cost of doing business. But Dahal said banks cannot afford do so because ‘we cannot recover costs that went into completing various processes prior to extending loan to small borrowers’. Another concern is on ban to collect renewal fee from users of rupee-denominated electronic cards like ATM, debit and credit cards.
“This rule will compel us to collect higher fees when issuing cards as we won’t be able to collect any extra fee till card expires,” Dahal said.
source:the himalayan times,11 jan 2015
LINK
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