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The government is preparing to set a limit of Rs 2.5m on individual deposits in cooperative institutions, citing increased risks stemming from large deposits driven by high-interest incentives.  

The government plans to introduce the savings cap and a host of other reform measures through an ordinance, according to an official of the Ministry of Land Management, Cooperatives, and Poverty Alleviation.  

This is in line with the recommendations made by the Parliamentary Special Committee on the Investigation of Misuse of Cooperative Deposits led by lawmaker Surya Thapa. The committee made a slew of recommendations ranging on limits on savings and loans in cooperatives, as well as forming a regulatory authority and credit information center for the sector.  

The official said the ordinance also proposes creating a Cooperative Regulation Commission and a Credit Information Centre, among other institutions, as recommended by the committee.  

This, however, is not the first time that the government is preparing to introduce a savings cap in cooperative institutions. Two years ago, the government had proposed to introduce an individual savings cap of Rs 2.5m in cooperative institutions through an amendment to Article 52 of the Cooperative Act, 2017. However, the Law, Justice and Human Rights Committee of the lower house rejected the proposed amendment.  

The committee also rejected a proposal for the regulation of cooperatives with capital above Rs 250m and an annual turnover of over Rs 500m by the Nepal Rastra Bank (NRB).  

Lawmakers from the Rastriya Swatantra Party (RSP) and the Rastriya Prajatantra Party (RPP) had expressed dissatisfaction with the decision to reject the amendment proposal. Interestingly, RSP President Rabi Lamichhane has been in the custody of Kaski police since Oct 18, under investigation for his alleged role in the misuse of deposits from the Pokhara-based Suryadarshan Saving and Credit Cooperative.  

The number of troubled cooperatives unable to return public deposits has been on the rise, mainly due to a lack of strong regulatory and oversight mechanisms. To address this, the ministry drafted the ordinance, proposing measures to regulate savings and credit cooperatives.  

Earlier this year, parliament amended the Nepal Rastra Bank Act, 2001 and the Cooperative Act, 2017, granting Nepal Rastra Bank (NRB) the authority to regulate, inspect, and issue directives for cooperatives involved in savings and loans. This paved the legal way for the central bank to regulate cooperatives with capital or annual turnover exceeding Rs 500m.

The Nepal Stock Exchange (NEPSE) plunged by 51. 37 points to close at 2,9630.91 points on Wednesday.

Similarly, the sensitive index dropped by 6. 93 points to close at 451. 28 points.

A total of 12,745,777-unit shares of 304 companies were traded for Rs 5. 93 billion.

Meanwhile, Kutheli Bukhari Small Hydropower Limited (KBSH) was the top gainer today with its price surging by 10. 00 percent. Likewise, Janaki Finance Company Limited (JFL) was the top loser as its price fell by 9. 58 percent.

At the end of the day, the total market capitalization stood at Rs 4. 36 trillion.

The price of gold has increased by Rs 400 per tola in the domestic market on Monday.

According to the Federation of Nepal Gold and Silver Dealers’ Association, the precious yellow metal is being traded at Rs 151, 200 per tola today. It was traded at Rs 150, 800 per tola on Sunday.

Similarly, the silver is being traded at Rs 1, 840 per tola today.

The high inflationary pressure from neighboring India has led to a rise in food prices in Nepal. India’s inflation has reached 5.48 percent over the past four months, with vegetable prices remaining elevated since last month. The continuous price hikes in India over the past two months have also affected Nepal, contributing to an increase in inflation, according to Gunakar Bhatta, Executive Director of the Economic Research Department at Nepal Rastra Bank. 

Overall inflation has risen due to the surge in food prices. According to the central bank, the annual point-to-point consumer inflation rate for the current fiscal year, as of October, reached 5.6 percent, higher than the 5.38 percent recorded in the same month last year. Inflation for food and beverages stood at 9.1 percent, while non-food and services saw an inflation rate of 3.65 percent. In October of the previous year, food and beverage inflation was 5.98 percent, and non-food inflation was 4.99 percent. 

Subcategories within food and beverages experienced significant price increases. Vegetables saw inflation of 33.99 percent, lentils and pulses rose by 10.78 percent, food-related products increased by 10.15 percent, and ghee and oil prices climbed by 9.29 percent. However, the prices of spices, sugar and sugar products, and fish and meat decreased by 1.41 percent, 1.28 percent, and 0.02 percent, respectively. Bhatta pointed out that the overall price pressure in Nepal is primarily due to rising food prices in India, where food items are more expensive.

Nepal’s foreign exchange reserves have grown, as more foreign currency has been flowing into the country than leaving. As of October in the current fiscal year, foreign exchange reserves stood at Rs 2.05trn, compared to Rs 1.5trn during the same period last year. In US dollar terms, the reserves increased from $113m last year to $153m this year. Additionally, the current account balance has also risen, from Rs 97.1bn last year to Rs 143.42bn this year. Foreign direct investment has increased as well, with Rs 5.76bn flowing into Nepal compared to Rs 3.65bn last year.

Before the Covid-19 pandemic, economic activity in Nepal was robust, with growth surpassing seven percent. However, the economy has not yet returned to that level. Bhatta argues that with the increase in foreign exchange reserves, there is now a solid foundation to expand economic activities. While the external sector has strengthened over the past year and a half, domestic inflation remains high. He suggests that both the government and the private sector should focus on expanding economic activities, particularly in infrastructure development and construction projects. This expansion, combined with the management of surplus foreign exchange reserves and market liquidity, will help drive economic growth.