Govt preparing to set Rs 2.5m savings limit for coops

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.