NRB proposes strict guidelines for coops regulation

Nepal Rastra Bank (NRB) has proposed stringent standards and guidelines to tighten savings and credit cooperatives. The proposed standards aim to enforce stricter rules on savings, loans, board formation, and institutional governance of cooperative institutions. The central bank prepared the guidelines after recent amendments to the NRB Act, Cooperative Act and related laws granted it the authority to oversee the financial activities of savings and credit cooperatives.

As per the draft standards and guidelines, which have been made public to collect feedback of stakeholders, cooperatives will be permitted to collect savings up to 15 times their primary capital sourced from members. Likewise, loans that cooperatives can avail from banks and financial institutions have been capped at five percent of total assets or 100 percent of primary capital, whichever is lower.

The savings limits prescribed in the Cooperative Act have been incorporated in the guidelines and standards prepared by the NRB. Cooperatives operating within a single district can accept individual savings of up to Rs 1m, while those operating across multiple districts in a province are limited to Rs 2.5m. For cooperatives with working areas in more than two provinces, the maximum savings per individual has been proposed at Rs 5m. Likewise, cooperative institutions will not be allowed to collect fixed deposits.

Board members in cooperatives will be prohibited from taking loans other than those secured by their personal savings. The draft also caps the size of cooperative boards at seven members, with a provision requiring 33 percent female representation wherever possible. Cooperatives must also maintain a capital fund of a minimum of four percent.

Likewise, the guidelines require cooperatives to classify their loans into four categories—good, substandard, doubtful and bad. Loss provisioning for loans has been set at one percent for good loans, 25 percent for substandard loans, 50 percent for doubtful loans and 100 percent for bad loans.

The draft standards and guidelines bar members of a same family from holding positions on a cooperative’s board or supervisory committee at the same time. Likewise, one cannot serve in multiple cooperatives at the same time. Unsecured loans have been capped at Rs 300,000 or five times the savings maintained by the member, whichever is lower.

The NRB has also proposed stricter rules on procurement of fixed assets by cooperatives. Only the cooperatives profitable for three consecutive years, free of accumulated losses and compliant with capital fund requirements will be allowed to purchase land or buildings for office purposes. Such purchases must be made transparently through a competitive process. Cooperatives can spend 25 percent of their primary capital or 50 percent of their reserve fund for such procurements. Such procurement decisions must be approved by at least 51 percent of the general assembly, and the decision must be reported to the regulatory body within 30 days.