Nepal Rastra Bank Proposes New Guidelines for Savings and Credit Cooperatives

Nepal Rastra Bank (NRB) has unveiled a draft of new guidelines and standards for regulating savings and credit cooperatives. The draft has been prepared following the government’s decision to establish a Cooperative Regulation Authority. The proposed measures aim to bring greater oversight and financial discipline to the cooperative sector, which has faced issues of mismanagement in recent years.

Key Provisions in the Draft

The draft, available on the NRB website, outlines several important measures, including:

• Interest Spread on Loans and Deposits: The maximum interest spread is capped at 6%.

• Credit Limit on Total Deposits: Cooperatives can only lend up to 90% of their total deposits.

• Unsecured Loan Limit: Unsecured loans are capped at NPR 300,000.

• Membership Requirement: Only members with at least three months of membership can avail of loans.

• Real Estate Acquisition: Cooperatives can use up to 25% of their primary capital to purchase or build office premises, provided it is done transparently and through competitive bidding.

• Collateral Valuation: Real estate collateral must be appraised by authorized evaluators before loans are approved.

The draft guidelines encourage cooperatives to channel at least 50% of their loans into productive sectors such as agriculture, industry, and business expansion. If this requirement is not currently met, cooperatives have until the end of FY 2083 (mid-July 2027) to comply.

The proposed rules also mandate cooperatives to classify bad loans and create a reserve fund for potential losses. Additionally, cooperatives must maintain at least 15% of total deposits as liquid assets, ensuring financial stability.

NRB’s proposed measures are expected to address long-standing issues of mismanagement and enhance financial transparency in the cooperative sector. Provisions like interest spread limits, loan caps, and mandatory collateral valuation aim to mitigate risks and protect depositors' savings.

However, implementing these guidelines may pose challenges for cooperatives, particularly in rural areas where resources are limited. The focus on productive sectors like agriculture and industry signals a shift towards fostering economic growth through cooperative activities.

The government's decision to establish a Cooperative Regulation Authority highlights its commitment to reforming the sector. The draft also mentions that cooperatives must present detailed financial plans and comply with liquidity and capital adequacy requirements by mid-July 2027.

While the guidelines are stringent, they aim to restore trust in cooperatives by ensuring that depositors’ investments are secure and utilized effectively. With appropriate support, these measures can pave the way for sustainable growth and transparency in the cooperative sector.

The cooperative sector’s ability to adapt to these changes will determine the success of these reforms. Transparency in implementation, capacity-building initiatives, and collaboration between regulatory bodies and cooperatives will be crucial in achieving these objectives.

The proposed regulations represent a significant step forward in safeguarding the interests of depositors while promoting financial discipline within Nepal’s cooperative sector.