FINANCIAL PROVISIONS OF NEPAL RASTRA BANK (NRB)

Hi,

For those people who is curious to know about the central bank of Nepal, I have written this blog to help you further. 

A ) Capital of the Bank :

In simple language, Capital refers to the amount invested in the business by its owner. It is the liabilities of any business. It is the primitive source of finance that is used to operate any business. 

As per the Nepal Rastra Bank Act, 2002, the prescribed Capital of the Bank prescribed was one billion Nepalese rupees. However, it has been changed to five billion Nepalese rupees . 

The Capital of the Nepal Rastra Bank is received from the Government of Nepal. 

The basic rule regarding this is that, neither this Capital is transferred nor any burden of debt is placed upon it.

However, the Government of Nepal has the power to alter the above capital limit as deems fit.  But, for such alterations, the Government of Nepal consults the Nepal Rastra Bank.

B) How the bank deals with it Net Profit or Net Loss ? 

As we know, each and every business operations has either profits or loss. So, is the case with the central banks. Here, my focus is on the profit and loss account of Nepla Rastra Bank.

Nepal Rastra Bank prepares the account of its net profit and loss in each Fiscal Year. This account is prepared in accordance with the international accounting standard. The main objective is to reflect true and fair view of the books of accounts as per the international norms. 

Note :

• While preparing profit and loss account, the profit made and the loss sustained or the loss yet to be appropriated and the net valuation gains or loss is reconciled.

• Similarly, Bad or doubtful debts and depreciation of property is deducted therefrom.

a ) How the bank deals with its Net Profit ?

Profits are the financial benefits which is remained after settling the revenues against all costs. If the bank makes profit in any fiscal year, then the distribution and use of such profits are made in following priority order :-

• The amount equal to 5 % of the net profit of each fiscal year is to be allocated from the profits earned by the bank. This profits are kept in the monetary liability fund until 5 % of the total monetary liability of the Bank is met. 

• Similarly, an amount prescribed by the Board (not less than 10 % of the net profit of the Bank ) is allocated in the general reserve fund which is established by the Bank.

• While allocating an amount in the general reserve fund, an additional amount is appropriated to cover the capital expenses which is referred in the annual budget of the Bank.

• The amount equal to the revaluation profit is kept in the revaluation reserve fund.

• After the above appropriations, the Board appropriates the remaining profit (if any ) in other funds as thinks fit and pays the balance amount to Government of Nepal.

Note :

• The amount deposited in the monetary liability fund is used only for the purpose of fulfilling the financial liability of the Bank.

• The amount allocated to general reserve fund shall be used only for the purpose of recovering the loss.

b ) How the bank deals with its Net Loss ?

Loss is simply a negative profit. Nepal Rastra Bank may suffer loss. So, in order to sustain net loss in any fiscal year, following allocations are made:-

Case 1 : 

• If the total operation loss and revaluation loss have been included in the net loss, then, the amount of the total operation loss is to be charged to the general reserve fund or to the capital account. However, the amount of revaluation loss is debited to the revaluation reserve fund. 

• While making such allocation, if the revaluation reserve fund is also at loss, then, it will be debited to general reserve fund or the capital account. 

Case 2 : 

• If the net loss is due to accumulation of the total operation loss and the revaluation loss, the amount of such net loss shall be debited to the revaluation fund.

• If the balance of the revaluation reserve fund would be negative after such allocation, then, it will be debited to the general reserve fund or the capital fund.

Note :

• The Government of Nepal will bear the loss that is unable to be adjusted after making the above allocations.

C ) Annual Budget: 

As we know, budget is the quantitative expression of different plans which is set for definite period of time. They are predetermined. All the works are to be made within the funds allocated for particular head. Annual budgets are the yearly set budgets.

The Board of Nepal Rastra Bank approves the estimated budget of incomes and expenditures and also approves the programs for the coming fiscal year. This approval is given prior to the beginning of each fiscal year. 

However, the Board may evaluate and amend the approved budget in each three months. This is done on the basis of actual position and the matters that can be estimated. Such budget is finally sent to Government of Nepal .




( For more details regarding objectives, powers, functions, duties, money, banknote and foreign exchange policies Nepal Rastra Bank, click on the above links )