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deposit mobilisation

  • Co-ops outdo dev banks, finance cos
KATHMANDU, DEC 11 -

Raising alarm bells for the regulators, deposits in poorly regulated cooperatives have grown much higher than that in B and C class financial institutions.

The Department of Cooperatives’ (DoC) statistics show cooperatives across the country had deposits worth Rs 139.54 billion at the end of the last fiscal year. And, development banks and finance companies had deposits worth Rs 127.30 billion and Rs 76.11 billion, respectively.

The DoC statistics clearly suggest where the money is going. In the last fiscal year, cooperatives’ deposits grew by a whopping Rs 22 billion. The surge in cooperatives’ deposits, according to bankers, poses risk to the financial sector as they are not properly regulated.

Bankers attribute the massive growth in cooperatives’ deposits vis-à-vis development banks and finance companies to a decline in banks’ interest rates and troubles at a few development banks and finance companies. Surge in the number of cooperatives and the high interest rates offered by them also contributed to the rise in their deposits.

Development banks and finance companies are regulated by the Nepal Rastra Bank (NRB), which carries out timely supervision and monitoring. Despite NRB’s strong eyes, these financial institutions have landed in troubles, especially in last three years.

NIC Bank CEO Sashin Joshi termed the enormous rise in deposits of cooperatives ‘alarming’. “The massive rise in deposits of the poorly regulated cooperatives sector poses a big challenge for the country’s financial system,” said Joshi.

In the absence of an all-powerful regulatory body like the central bank to monitor cooperatives, there are fears that public deposits might be at risk, with most of the cooperatives not following prudential financial norms. The recent case of the country’s two largest cooperatives—Oriental and Guna—struggling to payback depositors’ money justifies this fear.

As of now, there are 26,501 cooperatives across the country, including 11,851 saving and credit cooperatives. With the government prioritising the cooperative sector as one of the three pillars of the economy, there has been an impressive surge in the number of cooperatives in last fiscal year. In fiscal year 2011-12, 3,200 new cooperatives were opened, including 854 saving and credit cooperatives.

Most of the deposits are with saving and credit cooperatives. Such cooperatives hold Rs 109.94 billion—10 percent of the total deposits in A, B and C class banks and other financial institutions.

Most of the problems seen in the cooperative sector are related to saving and credit cooperatives. According to the DoC study, cooperatives are being run as family business, with family members working as directors and audit committee members. The study also showed cooperatives are transferring fixed assets like land, buildings and shares taken as collaterals in the name of board members or other companies they have promoted.

Bankers say given the size of deposits that cooperatives hold, their regulation has become a must. “There has to urgency on the part of the government to regulate cooperatives,” said Joshi.

NRB Spokesperson Bhaskar Mani Gyawali highlighted the need for timely regulation of large cooperatives with big deposit base. “There is a need for a second tier regulator to regulate these cooperatives,” said Gyawali.

As per the Cooperative Act, the Cooperative Department is only the authorised agency to suggest cooperatives if it finds any of them breaching the Act. But with limited staff, the department is struggling to efficiently monitor cooperatives.

Amid growing anomalies in the sector, the government, of late, has started homework on regulating cooperatives. The Ministry of Cooperatives and Poverty Alleviation (MoCPA) is currently doing homework on formulating a new regulation that is expected to help track the working of cooperatives, mainly based in the urban areas.

“We have started discussions with stakeholders related with to saving and credit cooperatives for the purpose,” said Rana Bahadur Shrestha, secretary at the MoCPA.

The new regulation is expected to trail whether cooperatives are working as per their bylaws. The regulation will mainly target the reporting system of saving and credit cooperatives in a more effective way. “It will help look after issues like whether they are conducting annual general meeting on time, regular meeting of shareholders, and reporting the authority on their financial transactions on a regular basis,” said Shrestha.

The MoCPA has forwarded the draft of the National Cooperative Policy 2012 to the Cabinet for approval. The proposed policy talks about strict monitoring of saving and credit cooperatives, encouraging mergers and encouraging cooperatives federations and associations for monitoring of their members.

 

Posted on: 2012-12-12 08:44


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