REASONS OF POOR LISTENING

Listening is a bit complex process that starts from hearing, passes through decoding, storing, evaluating and responding to the message. The main reasons of poor listening are as follows:

1. Cultural Differences:

Different cultures convey different meanings as per their culture. So, to understand the correct meaning of sender becomes very challenging job for the receiver.

Let us see an example:

The sign of ‘Ok’ in U.K and USA means ‘ok’. In the culture of Brazil, it is considered as an insult. Similarly, in Nepalese culture it means ‘awesome’.

2. Educational differences:

Educational differences creates a fear in the mind of the listener. The listener thinks that, he is not smart enough to understand the complete message.

Let us see an example:

We can see it, when a MBA post graduates attends the technical meeting of Engineers or Doctors, listening becomes poor because of the educational differences.

3. Family background:

The family background may lead to poor listening. There may be several viewpoints (developed over a certain period of time) about the same thing - that creates bias in understanding the message of sender.

4. Attitude Difference:

Attitude differences also results poor listening.

According to S.P.Robbins :

“Attitudes are evaluative statements or judgments concerning objects, people or events”

The Attitude differences like:

• Eagerness to speak more

• Passing remarks

• Passing comments

• criticizing others

• Being judgmental

• Interrupting in between etc.

- makes the listener poor. 

5. Psychological Reason:

As per research, it is found that most of the people speaking speed is at about 120 to 150 words per minute. Similarly, the processing speed of the audio is up to 500 or more words per minute. There is sufficient gap found in the speaking speed and listening speed.

So, if the receiver’s brain is left unsupervised, then the listener will surely start day dreaming or being engaged in other activities psychologically. Therefore, psychological reason can also lead to poor listening.

6. Other reasons :

• Not paying attention to the speaker.

• Jumping to conclusion.

• Focus on personal gestures.

• Pretend as if listening.

• Showing disinterest

• Being Selective in filtering message.

pic. Credit: navicate.org

LISTENING

Whether be it boss or teacher or parents, they keep on saying us-

“hey listen to me carefully”. 

So what do they really want us to do?

They simply wants us to pay attention and understand their message in right sense. …Don’t they ?

It is said “hearing is through ears but listening is through mind.”

So, basically what do listening really need?

It simply needs:

• A patient effort to shut down all your premature evaluation and internal bias related stimulus and 

• Understand the intended message of the speaker rather than simply hearing to him. 

Most of the students are physically present in their class but they are mentally present elsewhere, so they just hear but do not listen to the teachings. Majority of people who is a part of mass, just hears the speaker.

Hearing is the ability of the ears to sense the sound (tone, peach variations, volume, pauses, speed of speaker and stress on words). Listening requires our concentration of mind and interpretation of the sound - to get the intended message. Therefore, it can be rightly said that, when a person understands what he hears, he is listening. 

Listening Process

When hearing transforms through complex process, it results in listening. So, Listening is not a simple process. In order to complete listening process, it must have following five steps:

1. Hearing : 

First of all the message is received from the sender. 

2. Understanding or Decoding : 

Then, the message is understood as per the receivers internal environment . 

3. Storing or Remembering : 

After decoding, the message is stored in the psychological sections of the receiver.

4. Evaluating or Analyzing: 

Then, the intended message is completely evaluated or analyzed.

5. Responding or Feedback : 

Finally, the feedback is sent by the receiver- as a response to the sender.

If any process breaks down in between, then listening process gets hampered. This results to the cons of listening.

Types of Listening:

Various philosophers has described the types of listening as per their understandings. They are briefly explained as follows: 

1. Critical Listening :

Under this, a listener makes a critical understanding by analyzing it at their different perception angle. Here, the receiver are generally skeptical. The receiver tries to evaluate and judge the sender on various grounds.

2. Selective Listening :

Under this method, the receiver filters few message among the whole message as per their level of interest.

3. Empathetic Listening :

Under this, a receiver puts himself in the place of sender and keeps listening. This makes sender easier to send their message.

4. Comprehensive Listening :

Under this, the Vocabulary and language skills make the receiver to understand the thoughts, ideas and messages of the sender.

5. Discriminative Listening:

Here, the receiver tries to understand the message by discriminating it on the basis of sound. For eg. Tone, peach variations, volume, pauses, speed of speaker, stress on words and the body languages)

6. Biased Listening:

Here, the listener listens only what he wants to hear. The receivers are very evaluative and a bit stereotype.

7. Appreciative Listening:

Here, the receivers appreciates when his favorite sender sends the message. For eg. Musics, speeches

8. Sympathetic Listening:

Here, we use our sympathy as a basis to understand the message. Emotional feelings plays a major role for listening.

9. Dialogic Listening:

John stewart and Milt Thomas has developed the concept of dialogic listening. This type of learning is done through words. Here, the receiver not only focus on listening but also tries to form a relationship during conversation.

10. Relationship Listening:

This is a type of listening whose main objective is to develop and spread relationship. Mostly seen within Peer groups, friends circle among peers, family members.

11. Informational Listening :

Here, the receiver mainly tries to understand the message given by sender by focusing upon the knowledge, skill and behavior of sender. The receiver listens to the tons of information day by day. For eg. Student receives information from teacher, family, surroundings and so on.

12. Therapeutic Listening:

It is a research based device that is used to help to the people who have poor sensory receptors. This method is generally used in theraphy.

13. Rapport Listening :

Here, the receiver tries to build some common ground of interest. This helps to understand the feelings, ideas and messages of each other. The receiver generally focuses upon the non-verbal language to understand the message.

14. Passive Listening:

It is listening without showing any reactions. Generally, the receiver do not show any interest to sender. The communication is generally one way and dominant. Queries are discouraged.

15. Active Listening:

Under this type, the receiver takes an active participation during listening process. It makes the speaker alive. Queries are encouraged.

16. Initial Listening :

Under this type of listening, as soon as the receiver receives the message, he starts to query the sender, without letting him to speak until the query is complete. Under this process the receiver keeps an eye to interrupt the sender frequently.

17. False Listening :

Under this type of listening, the receiver takes more time to understand and analyze the earlier message. Due to this reason he shows a false impression to the sender that he is listening to their message.


18. Content Listening : 

Under this kind of listening, the focus of listener is on the information provided by the speaker.


19. Full Listening :

Under this method, the receiver tries to understand all the messages of the sender and tries to find the meaning and intended sense of the message .

20. Deep Listening :

Here, the receiver makes a deep understanding of the message. The word spoken may have multiple meanings as per time and circumstances. This listener tries to break down the real meaning (even out of jargon used) tactfully.

21. Evaluative (critical, judgmental or interpretive) Listening:

Under this method, the main aim of listener is to evaluate, judge, criticize and pass comments to the sender.

22. Attentive Listening :

Under this method, the receiver attentively listens the message of sender.

23. Reflective Listening:

Under this method, a listener tries to reflect his understandings to other people.







Pic. Credit : www.lantanaliving.com

CONCEPT AND FORMS OF MONEY

This is the blog written to explore the knowledge about money.

In very simple language, 

Money is the coin and paper note that is circulated and accepted as a medium of consideration in the society.

However, the concept of money is not limited to this. In ancient years beside the use of metallic coins -cattle, tobacco and grains were also used as money. So, is it appropriate to call all of these items as money?

A ) Traditional Function-Based Views: 

Under this view, anything that performs the functions of money is considered as money. The economists had a consensus-ad-idem as to the concept of money. They believed that, any commodity that functions as money can be said to be money. 

In the words of Hartley Withers, “Money is what Money does.” 

So, this definition has made the concept bit complex …isn’t it?

To simplify it, the economist mentioned that, in order to be qualified as a money, it must have to satisfy following four important functions:

1. It must be used as a medium of exchange .

2. It must have measure of value .

3. It must be used as a standard of deferred payment .

4. It must have store of value.

The economist like: Crowther, R.P.Kent, walker and other modern economist were the supporters of this views.

However, an economist named Conlberston had argued that, money should not be defined upon its characteristics. It is a concept that is based on a function of good, on a particular use to which it is put.

B ) Generally Accepted Views: 

Under this view, whatever the society accepts as money becomes money. The economist like: Marshall, Benham, Seligman, Robertson and other neo-classical economists gave their definitions on the basis of general acceptability. This is the reason, cheques, bills, drafts, Letter of Credit are considered as money. 

According to Benham : 

“Money is defined as generally acceptable purchasing power or something which everybody is prepared to accept in exchange of goods and services. “

According to Seligman :

“Money is one thing that possesses general acceptability.”

C) Legal Views: 

Under this view, anything that is declared money by the central banks of the country is called money.

According to Hawtery :

“Money has two sides: first it is a unit of account, second it is legal tender “

According to Nepal Rastra Bank Act, 2002 :

"'Money' means all types of currency notes, postal orders, postal notes, money orders, cheques, drafts, traveler's cheques, letters of credit, bills of exchange, promissory notes and credit cards and this term also includes similar types of monetary instruments as the Bank may prescribe, as per the requirement, through the publication and transmission of public notice. "

(-as amended on 14th November 2016) 

The economist argued that, these definitions has neglected the rule of “general acceptability”. Money can’t be called as money, if the people do not accept it as money.

For eg. During the situation of hyperinflation in Germany, people adopted U.S dollar as the money, and rejected the government money.

D ) Modern functional View: 

It is an extension of traditional functional view with some degree of expansion over it. Under this view the function of money is classified as follows:

1 ) Primary Function

• Money works as a medium of exchange 
• Money serves as common measure of value 
• Money serves as a unit of account 

2 ) Secondary Function/Derived Function:

• Money serves as the basis of standard of deferred Payment.
• Money serves as a store of value .
• Money serves as the transfer of value (purchasing power) .

3 ) Contingent Function:

As discussed by prof. Kinley:

• Money serves as a basis of credit .

• Money serves as a distribution basis of social income .

• Money works as a general form of capital .

• Money is the source of deriving maximum satisfaction and maximum benefits. 

Forms of Money: 

Money can be of following forms:

A) Commodity money

If commodity is used as money, it is called commodity money. For e.g. Animal leathers, bones, grains, cattle and so on.

B) Metallic money/ Standard Money

If metals is used as money, it is called metallic money. For e.g. Coins made from iron, copper, brass, gold, silver and so on. This money were able to be used for long period of time. Therefore, metallic money were termed as standard money. The metallic money took any one of the following two forms:

1 ) Standard coins:

If the intrinsic value of money is greater or equal to the face value of money, it is called standard coins. Generally, the metals used are gold and silver (either in bimetallism form or mono-metallic form) with definite weight and purity. These money are also called “full-bodied coins”.

2 ) Token coins:

If the intrinsic value of money is less than its face value of money, it is called token coins. Generally, the metals used are made up of – aluminum, copper, brass, iron. Nobody is bound to accept more than a particular quantity of it. Therefore, they are called “subsidiary money”.

C) Paper money:

A money made up of paper is called paper money. It is generally issued by central bank. The intrinsic value of money is very less than its face value. It is legal tender money accepted by all. China is sourced to be first country to use paper money. It can be :

1 ) Representative money:

Such money that represents other form of money, it is called representative money. For eg. Golds are not circulated in large amount from one place to other. So, it is kept in reserves. One the behalf of it, a certificate of ownership is provided. Such paper do act as money that represents the quantity of gold. Therefore, it is called “representative money” and “convertible money” .

2 ) Fiat money:

If gold is not kept at its full value in the reserve, then such money is called fiat money. Its face value is very much high than its intrinsic value. It derives value only by the order of government. There is no provision to get it converted into gold or silver. It is called “in-convertible money”.

D) Plastic Money:

Money made from plastics are called plastic money. Nepal Rastra Bank had issued Nepalese ten rupee as plastic money. It is also a legal tender.

E) Bank money:

The cheques drawn on demand or current deposits of bank are called bank money. There is a strong debate, whether cheques drawn upon saving deposits (also called near money) will be called bank money or not. Bank money also includes: drafts, travelers cheque, bill of exchange, promissory cards and other banking cards. Since these money are not a legal tender, it is also termed as “optional money”. This kind of money is also called “credit money”.

F) Digital Money:
The money that is in electronic form (digitally stored) are called digital money. They are also called “cryptocurrency” or “Digital Currency”. They are not legal tender, however has more acceptability by the general public across the world. For eg. Flooz, Beenz, Bitcoins.

(For details regarding currency of nepal and its related rules in relation to money, bank notes and coins click on above link)







pic. credit :www.history.com

CURRENT SITUATION OF NEPAL (2018)

As described under article 4 of the constitution of Nepal, 2015 -

Nepal is an independent, indivisible, sovereign, secular (i.e. religious, cultural freedom including protection of religion, culture handed down from the time immemorial), inclusive, democratic, socialism-oriented, federal democratic state.

This is the blog written to explore the knowledge of current scenario of Nepal through business perspective. 

Current Overall Scenario of Nepal:

a ) The new constitution of Nepal, 2015 has changed the federal structure of Nepal. There are three level of government. They are:

• The Federal Government 
• State Government 
• Local Government

b ) Nepal is currently divided into :

• 7 provinces (as defined by schedule 4 of the Constitution of Nepal, 2015)
• 77 Districts 
• 753 Local levels 
• 6 Metro-city 
• 11 Sub-metro city 
• 276 Municipalities 
• 460 Rural municipalities

c ) Dr. Yuba Raj khatiwada, a current finance minister and a well-known economist of Nepal, had announced budget on 29 May 2018 for the year 2018/19. 

The provincial governments had presented their revenue and expenditure estimates in their respective assemblies on 15 June 2018, following the provision of the Intergovernmental Fiscal Arrangement Act, 2017.

Therefore, in the alignment of government budget, studying the global scenario of economic outlook, suggestions from the stakeholders – Nepal Rastra Bank has framed the monetary policy ( for details Road Map of monetary policy (2018/19 ) of Nepal ) to safeguard macroeconomic and financial stability, widen financial inclusion and achieve targeted economic growth.

d ) All the relevant laws are being amended or re-framed as per the new federal structure of Nepal Government.

e ) The frequent change in election process of Nepal has been stable.

f ) Political environment has been found stable as compared to past few years.

g ) The economic indicators were not found in positive direction. The root cause of problem were-

• Being unable to utilize the allocated budget expenditure of the government. 
• Non-budgetary expenses were increased up to high level. 

- This has resulted to a great challenge in the area of Public finance.

h) The financial discipline are broken with unhealthy and unfair way. The country has been revolved around the cyclic movement of revenue based upon imports, and remittance based consumption. The government revenue has been condensed due to following factors:

• Compactness in the volume of national economy 
• Foreign aid has not been received in full 
• Received Foreign aid has not been properly mobilized.

i ) Volume of remittance is found quantitatively high but the elasticity of remittance has been found relatively low then earlier years. 

k ) An unbearable unbalanced change in the external environment has pressurized the country’s foreign currency reserve.

l ) Capital mobilization of financial sector has not been able to align with economic growth. Infrastructure and industrial sector has not been grown as per expected. Internal capital market has not been still stable and reliable. The industrial capital has been mostly shifted towards financial and trading sectors.

m ) Creeping Activities for capital formation is found in both private and governmental sectors (majority of projects are not completed within allotted time frame.)

n ) The basic and fundamental facilities provided by the Governmental service is found to be poor. The flow of services are neither simple and consistent nor easily available. 

o ) Rather being Production and manufacture oriented, the interest of country people are inclined towards distribution oriented activities. 

p ) The governmental reserves has been reached to the minimum level. This is due to non-compliance of budgetary discipline. In the name of project implementation, assurance of source has been given- without proper planning, without proper reliable base and without proper sources. Even after allocating the funds to the local levels, the cost and benefit measurements could not be properly known. 

q ) Since, the country has marched towards new federal structure. One the one hand, the operating expenditure will tremendously get increased, while on the other hand, huge budget is required to develop all the local levels. 

This has led the challenges to all the three levels of government (central government, state government and local government) to - effectively mobilize the resources and implement development activities.

r ) Other current scenarios are mentioned as follows under following link : Current economic scenarios of Nepal.  

Picture credit :kathmandupost.ekantipur.com

Understanding Financial Literacy and Customer Protection Situations of Nepalese Banks and Financial Institutions.

In today's globalized era, it is utmost important to understand the financial literacy environments of Nepalese banks and financial Institutions (BFIs).

Financial literacy makes the behavioral changes _ through better financial decision making. It is the understanding of various financial areas (like money, investments, personal finance) that helps to use their financial resources wisely. This helps an individual to know about his earnings, savings and investments.

Customer protection is the way through which the customers gets shield in relation to unfavorable situations. Financial literacy helps the customer to get protected.

As per the data provided by Nepal Rastra Bank, the number of branches of BFIs stood at 6,418 in mid-June 2018. These include 2,919 branches of commercial banks, 951 of development banks, 183 of finance companies and 2,365 of micro-finance institutions.

On an average, population served by per branch of BFIs stood at 4490 in mid-June 2018 compared to 5,809 a year ago. Of the total 753 local levels formed in the process of implementing federalism, commercial banks have shown their presence in 556 as of 8 July 2018. A research has also said that, more than 40 % of the people are out of the banking channel. This is due to lack of financial knowledge among the Nepalese people.

Poor financial literacy may lead to poor investment decisions, victim of higher interest rates, poor credit facilities, high opportunity costs and even bankruptcy.Therefore, financial customer protection and financial literacy has become the today’s necessity.

Nepal Rastra Bank has directed through its directive number 21 of its Unified Directive- 2075  to all its licensed banks and financial institutions to protect financial customer and enhance financial literacy.

Some of the arrangements that are made for Nepalese BFIs in relation to Financial Literacy and customer protection are as follows :

A ) Transparency related arrangements for Nepalese banks :

All the banking and financial institutions has to disclose all the necessary information regarding the nature of service provided, the charges charged under several names (fees, commission, brokerages, interest, fines, penalties), the procedures that is to be adopted and other kinds of conditions imposed for providing the services.

For this they generally do following activities:

a ) The banks and financial institutions makes necessary arrangements to their customers about
 -the services provided, types of accounts with different names offered, types of loans offered, financial services provided through electronic devices 
– through pamphlets, brouchers, diaries or through booklets to their customers.

b) The Nepalese banks clearly communicates the following details in precise, clear, free from ambiguity, topics orderly arranged and in simple language about following:

• Different types of accounts in operation (like saving account, fixed deposit account, current account, karmachari account, chuna muna account and so on).

• The details regarding fees charged to their customers for availing different types of services and facilities.

• The process to close the account.

• The methods of computing interest.

• The Advance payment fees.

• The actions to be taken on making default in payments of interest on time.

• Late fees charges

• Penalties fees

• The process of operating different types of electronic cards and their procedures.

• Details of possible banking offences and

• The details regarding the necessary safety measures that the customers has to comply .

c) All the Nepalese banks are required to send their details regarding different cost, interest related details as per the direction given by Nepal Rastra Bank, in specified format.

d) These details are also hosted on the website of the respective banks.

B ) Language related arrangements for Nepalese banks:

The BFIs are required to use easy and understandable language while providing financial services to its customer. The documents used for operating there clients are to be prepared as follows:


a) For Nepalese customer- in Nepalese language 

b) For Internal and International transaction purpose- in English languages

C ) Information related arrangements for Nepalese banks:

The BFIs are required to use easy, understandable and free from ambiguity
language while providing financial services to its customer.

D ) Simple banking related arrangements for Nepalese banks:

All the Nepalese banks has to make special, preferential and simplified arrangements regarding :

• Senior citizen

• Differently able citizen

They should be served through easily accessible counters and help whenever required while operation of banking transaction.

E ) Amended Fees related arrangements for Nepalese banks:

Any charges in contrary to the previous contracts is disclosed to the respective sections of customer. For the public interest, this changes in new structure of interest rates are also to be published in national daily newspaper (for nationally operated banks), regional/ district newspaper (for district operated banks ).

F ) Accounts related arrangements for Nepalese banks:

Nepalese banks are not allowed to take any charges in any name in providing following services:

• Opening deposits account

• Issuing cheques

• Operating accounts

• Closing accounts after 6 month of opening accounts.

• Providing the statements

• Providing loan to natural person up to Nepalese Rs.2, 00,000 through any branch banking services.

• When dormant accounts are made active.

However, they are free to charge fee, if any customer constantly demands the statements for same period more than once.

On issuing the card in Nepalese currency, No banks are allowed to charge any charge - for providing electronic cards except issue cost and renewal charges (on expiry of the card ).

G ) Cheques related arrangements for Nepalese banks:

For depositing the money on self-account through any kind of instruments like:

• Cheque

• Bills

• Pay order

- The banks has to deposit all the money mentioned in the aforesaid instruments in full in the account of customer. 

However, any commission that is to be charged for such services should be separately taken and separately accounted in the vouchers. 

H ) Interest related arrangements for Nepalese banks:

The difference between the two saving accounts of different names are not allowed to be more than 2%. While making any changes regarding the interest rates scheme of saving accounts, the bank must incorporate the changes in such a way that, all the saving accounts have proportionate impact by the degree of changes made.

The difference between the yearly penal provisions of lending fund as per agreement should not be more than 2%. However, while computing the yearly penal provision of lending fund, no banks are allowed to demand excess sum of money than its assured principal or interest for the amount due.

Interest on deposit will be provided even if the deposit account of customer is dormant.

The publication of interest rate is published as yearly interest rate.

I ) Service Fee related arrangements for Nepalese banks:

A ) Service fee related :

The cost of service charged by bank should not exceed the cost to the banks.

For example:

While getting the credit information of customer or Black listing the customer,

Then, the Fees charged by bank on removal from such black listed group- should not be more than the cost to the banks (i.e. fee charged by the credit information department).

Similarly, while providing ATM service, card services, charges for evaluating financial securities, insurance service charge and like, should not be charged more than its cost.

No charges is to be charged by any banks for clearance of cheque of less than Nepalese RS. 2, 00,000, through electronic mode.

b) Administrative fee and guarantee fee related:

Banks are allowed to charge administrative fee for passing loan. But, the administrative fee should be immediately reimbursed on refusal.

All fees are incorporated while computing the interest rate on loans - except administrative fees and guarantee fees.

For passing the loans under same categories, the deviations of administrative cost and guarantee cost should not exceed 0.25 %.

J ) Advance payment related arrangements for Nepalese banks:

• On providing loans the banks has to clearly state advance payment fees for loan transactions. Not to charge any kind of fees by the banks, if the loan holder wants to settle the debts in advance.

• If anyone wants to settle the loans and advances (up to Nepalese rupee 50 lakh or to the excess of its limit ) as an advance payment, due to the change in prior arrangements (related to interest or other agreements ), then, in such a case - no fee is to be charged by the bank. 

• If project loans and advances is taken by the debtor and the bank has changed the agreements (related to interest and other), without consulting the debtor, in such a case , if a debtor wants to settle the loans and advances as an advance payment - then no fee is to be charged by the bank.

K ) Grievance related arrangements for Nepalese banks:

All the Banks has to establish ‘Grievance Handling Desk’ and inform their customers for such facility in order to handle any uncomfortable and problems of their customers. Nepalese banks has established hotlines and online grievance handling portals for managing their customers.

L ) Financial Literacy related arrangements for Nepalese banks:

All the Nepalese banks are compulsorily required to incorporate financial literacy program in its strategic plan. They are required to provide financial information and financial inclusion programs for their customers.

M ) Confidentiality related arrangements for Nepalese banks:

All the banks has to keep the business related details (like, books of accounts, records, financial statements) of their customers secret except required by law.

Note:

Any bank and financial institution acting in contravention to the above is punished as per section 100 of Nepal Rastra bank Act, 2002. 

Road Map of Monetary Policy (2018/19 ) of Nepal

In this blog, 


I have made my sincere effort -to explain the overall monetary policy (2018/19) of Nepal in easy and organized way. 

The central bank is established to formulate necessary monetary policies as well as foreign exchange policies - to maintain the price stability and consolidate balance of payment (BOP) for the sustainable development of country.

Nepal RastraBank being the central bank of Nepal, is governed by Nepal Rastra Bank Act, 2002. Since 2002/03 the central bank has been publicly issuing monetary policy.  In addition to this, the bank releases quarterly and half-yearly review of the policy. However, the necessary amendments in Nepal Rastra Bank Act, 2002 has been made and Nepal Rastra Bank Act, 2016 has been enforced by consolidating the federal structure and other environmental issues.

The new constitution of Nepal, 2015 has changed the federal structure of Nepal. The Federal, state and local governments have been formed. The budget has been announced for 2018/19 on 29 May 2018. The provincial governments has presented their revenue and expenditure estimates in their respective assemblies on 15 June 2018, following the provision of the Intergovernmental Fiscal Arrangement Act, 2017.

Therefore, in the alignment of government budget, studying the global scenario of economic outlook, suggestions from the stakeholders - Nepal Rastra Bank has framed the monetary policy to safeguard macroeconomic and financial stability, widen financial inclusion and achieve targeted economic growth.

Current Economic Scenario of Nepal:

• National macroeconomic indicators (such as economic growth and inflation) are in expected direction.

• The domestic economy is on a positive track. This is reflected by the encouraging economic growth of past 2 years.

• Increase in Imports is posing challenge to stability in external sector.

• The global economy is on a cyclical upswing.

• Prices of several international commodities are rising creating inflationary pressure.

• The monetary policy stances remain mixed at the global level.

• The balance of payments (BOP) is in deficit.

• Imports has exceeded Exports.

Economic Projections of Nepal: 

• Economic growth rate is to be maintained around 8 %.

• Consumer price inflation within 6.5 %.

• The maximum growth of broad money is set at 18 %.

• Domestic credit is projected to grow by 22.5 % and the private sector credit is projected to grow by maximum 20.0 %.

• Mobilization of resource to create employment promotion and entrepreneurial development.

• Maintain interest rate stability.

• Ensure easy access to financial services for all citizens by prioritizing financial inclusion and financial literacy. 

• Use of technology in payment system will be encouraged.

• Ensure adequate foreign exchange reserves to cover the prospective import of goods and services ( at least for 8 months).

• The demand for bank credit has increased since past 2 years. On the one hand, demand for credit has increased, while on the other, the balance of payments situation of the country is in deficit.

• There is a need to increase the loanable fund for attaining higher growth and promote rational allocation of resources for creating an inclusive economy.

• The interest rate on institutional deposits mobilized through auction has soared mainly due to slower growth of deposits relative to credit demand. As this has exerted high pressure on lending rate.

• Make necessary amendments in Nepal Rastra Bank Act, 2002 and Bank and Financial Institution Act, 2017 will be initiated.

• Make necessary policies related to regulation, inspection and supervision for the establishment and operation of infrastructure banks.

• Make necessary arrangements for opening branches of the BFIs to make the banking services further simplified and accessible.

• Establishment of provincial office of all commercial banks in each province.

• The campaign for opening bank accounts of all Nepali citizens within a year will be implemented effectively in coordination with concerned institutions.

• Students at high school and university level will be encouraged to open bank accounts. This will be complemented by financial literacy campaigning.

• The process of establishing Real Time Gross Settlement (RTGS) system has already been initiated. Necessary steps will be taken to establish National Payment Switch/Gateway.

• Encourage merger and acquisition process.

• All commercial banks are required to arrange for institutional rating . Such a rating can be done from national or international credit rating agencies. In addition, commercial banks are required to use the credit rating of the borrower as a basis for credit disbursement and renewal for the loans exceeding Rs. 500 million.

• Development banks and finance companies will be required to prepare their financial statements as per the Nepal Financial Reporting Standard (NFRS). 

• Aggregate demand will increase. This will create inflationary pressure in the economy due to : a ) Increase in expenditure of local, state and federal governments in course of achieving the targeted growth rate. b ) Increase in petroleum prices in the international market. 

Management Policies :

The shift of economy from the current scenario to the above projections, are planned to achieve through following management techniques :

A ) Through Monetary Management Techniques :

• The central bank has been using open market operations (OMOs) as the main instrument of monetary management. OMOs will be conducted on the basis of liquidity in excess of minimum reserves to be kept by the BFIs.

• Use WAIBR (weighted average interbank rate) as the operating target of the interest rate corridor (IRC) system.

• Reduce IRC to 6.5%

• Raise two-week deposit collection rate to 3.5 %

• Trim IRC to minimize the fluctuations in the short-term market interest rate.

• The provision of taking two-week repo rate as the policy rate is unchanged i.e 5% to maintain short term stability in interest rate.

• Reduce cash reserve ratio (CRR) to 4 %.

• Lower the Base Rate.

• Reduce SLR to 10 %, 8% and 7% for A, B and C class of banks respectively.

• Fix bank rate for the purpose of lender of last resort (LOLR) facility to 7%.

• Not required to make a margin call, when the pledged value of shares as collateral for margin lending declines by less than 20 %.

• Allow BFIs to extend their margin lending against the collateral of shares upto 25 % of their core capital.

• Maintain refinance rates as follows :

a) General refinance rate to 4%, special refinance and export refinance to 1%. However, Under this provision, BFIs are allowed to charge a maximum 9 % interest rate on general refinance and 4.5 % on special as well as export refinance.

b) The special refinance is provided at 1 % to promote sick industries, cottage and small industries, small businesses run by dalits, indigenous people, differently-abled individuals and deprived communities. Likewise, the export refinance aimed at encouraging exports is also kept unchanged at the existing rate of LIBOR plus 0.25 % .

B ) Through Credit Management Techniques:

• Allow BFIs (including in Indian currency) including Microfinance institutions to mobilize external borrowing up to 25 % of their core capital.

• Commercial banks to mobilize external loans in convertible foreign currencies up to 25 % of their core capital.

• Make provision for providing hedging facility for the foreign investment in infrastructure projects, pooling the investment amount in a separate fund. The fund will help to manage the foreign exchange risk to be borne by foreign investors. This facility is expected to attract foreign investment in large hydropower projects, transmission lines, roads and other infrastructure projects. A separate provision will be made in this regard.

• The ceiling of personal overdraft loan and revolving type loans extended by the BFIs will be reduced to Rs. 5.0 million. Additional policy provision will be introduced to control personal as well as overall overdraft lending of the BFIs.

• For commercial banks - Atleast 25 % of their total credit must be kept aside for priority sector lending of funds, whereby it must include at least 10 %  in agriculture sector and at least 15 % to energy and tourism sector. 
• However, for the development banks and finance companies -  at least 15 percent and 10 percent respectively of their total credit to priority sector is to be kept aside.

• Commercial banks will be encouraged to extend credit in the priority sectors in all 7 provinces.

• BFIs will be encouraged to provide credit to small and medium enterprises (SMEs).

• The limit of the refinance fund, set up for disbursing concessional credit to the priority sectors, will be increased to Rs. 35 billion.

• Loan to get extended for purchasing public vehicles (operating from renewable energy) under the priority sector lending.

• Commercial banks, development banks and finance companies has been fixed to disburse minimum 5 % of their total credit to the deprived sector for all three types of institutions.

• Loan up to Rs. 1.5 million is extended to the projects that are run by women - against group guarantee, under deprived sector lending. For the development of women entrepreneurship, GoN has provisioned 6 % interest subsidy on such loans.

• Encourage investment in agriculture  by amending the Manual relating to Commercial Farming and Livestock Credit.

• Make institutional rating arrangements for all commercial banks from 2018/19. Such a rating can be done from national or international credit rating agencies by those commercial banks. 

• Use the credit rating of the borrower as a basis for credit disbursement and renewal for the loans exceeding Rs. 500 million. 

• Widen the scope of the deprived sector credit by providing :

a) Certificate based loan under the mortgage of educational certificates.

b) loan to deprived and marginalized sections of the society.

c) loan to students of target group for higher as well as technical and professional education.

d)loans to Dalit Communities (for operating businesses under group guarantee). 

-For this Goverment of Nepal has provisioned 5 % interest subsidy on such loans.

C ) Through Long-Term Interest Rate Management Techniques:

• Reduce the limit for BFIs to accept the fixed deposit up to 15 % of its total deposit liabilities from a single institution . The maximum limit for institutional deposits is kept at 45 % of total deposit liabilities.

• Mobilization of the auction-based institutional fixed deposit at maximum 1% points above of the published fixed tenure deposit rate.

• Encourage BFIs to mobilize financial resources through long-term bonds. Resources raised from bond issuance will be taken into account while computing credit to core capital cum deposit ratio.

• Commercial banks to maintain a spread rate of 4.5 % by mid-July 2019 and the spread rate will be reduced gradually. 

D) Through Foreign Exchange Management  Techniques:

• Extend the term of foreign currency loan up to 180 days to import industrial raw materials through commercial banks.

• Make L/C mandatory to carry out imports : a) from India – exceeding INR 50 million  b) from other countries - exceeding USD 40,000

• Provide Foreign exchange facility up to USD 1000 to travelers traveling abroad- based on travel document issued by the GoN for travelling abroad through the land route.

• Allow commercial banks to act as an agent for managing trilateral agreement, manage Escrow account and provide custodian services to foreign investors making a loan investment in various projects in Nepal. Allow commercial banks to act as an agent for recovery of loan and interest and auctioning of the collateral of defaulted borrowers.

• Allow foreign investors investing in specified industries and projects to borrow local currency against the collateral of their foreign currency deposits at Nepali commercial banks.

• Allow commercial banks to execute confirmation of the L/C for the correspondent banking and trade finance services against the collateral of the foreign currency deposits kept by these banks at domestic as well as foreign correspondent banks.

• A provision will be made whereby goods from third countries could be exported to countries other than Nepal as per international rules and norms through the letter of credit on the basis of the advance payments received from the importer abroad.

• Ease the supply of gold to bullion traders.

• Allow the commercial banks to import gold at any time or at once during the month based on quota for the month. 

CLASSIFICATION OF LOANS AND ADVANCES OF BANK AND FINANCIAL INSTITUTION OF NEPAL

Hi !


As all of you know, bank collects the funds from savers in the form of deposit and lends it to another in form of loans and advances.


In other words, it collects funds from surplus groups and lends it to the deficit groups. This helps to balance the entire financial economy.


In general, loans and advances may be categorized into :

• Secured Loans and Advances 

• Unsecured Loans and Advances 

• Demand (Short-Term ) Loans and Advances 

• Long Term Loans and Advances

• Subsidized Loans and Advances 

• Concessional (Soft ) Loans and Advances 

• Personal Loans and Advances 

• Commercial (Business) Loans and Advances 

Different Bank and Financial Institutions may have different kinds of loans and advance categories with different names. However, their scope will fall under above categories.

The central bank of Nepal has clearly directed its licensed Bank and Financial Institutions to classify its loans and advances on the basis of its time period. The expiry of the deadline of repayment of the principal as well as interest serves as a basis for categorizing the loans and advances.

Under unified directive number 2, issued as on bhadra 2075 of Nepal Rastra Bank, the entire loans and advances of all the Bank and Financial Institution of Nepal are to be classified under five categories. They are as follows:

1. Pass :

• It refers to such loans and advances that are not overdue. 

• It also includes all such loans and advances that are overdue by a period up to 3 month. 

• The minimum provision that should be made for this category is 1%.

• They are known as "Performing Loan". 

2. Watch List :

• It refers to such loans and advances that is in preview of 'Pass' category embarked with certain criteria. (for watch list conditions/criteria please read the tutorial note ).

• The minimum provision that should be made for this category is 5%. 

• They are also the part of "Performing Loan ". 

3. Sub-standard :

• It refers to loans and advances that has been overdue by a period of minimum 3 month and maximum up to 6 month. 

• The minimum provision that should be made for this category is 25%. 

• They are known as "Non-Performing Loan ". 

4. Doubtful :

• It refers to loans and advances that has been overdue by a period of minimum 6 month and maximum up to 1 year. 

• The minimum provision that should be made for this category is 50%.

• They are the part of "Non-Performing Loan ". 

5. Loss :

• It refers to loans and advances that has been overdue by a period more than 1 year. 

• The minimum provision that should be made for this category is 100%. 

• They are the part of "Non-Performing Loan ". 

Therefore, all the licensed Bank and Financial Institutions has to classify their entire loans and advances into above five categories and make specified provisions thereon. However, this information should be quarterly reported to the Central Bank under the prescribed format along with financial statements.

                                                     Tutorial Note:

Under following circumstances, the central bank has directed its licensed bank and financial institutions to keep their loans and advances under watch list category :

• loans and advances that is due for 1-3 month

• short term loans or loans against paid up capital, whose period is temporarily increased without renewal.

• The debtor who fall under non-performing loan category in any other bank and financial institutions.

• Even though the principal as well as interest is timely paid, the lending bank and financial institutions must consider following :

• Is the loan passed to such debtor who is constantly bearing loss for two years ?
• Do the firm, company or institution has negative net worth ?

                  If the answer to the above two question is positive then it must be kept under watch list category. 

                  However, in case of project based loan, the above criteria must be checked only after production process has begun.

• Consortium financing (loan amount equal to 1 arab or more ) that has not been converted into multi-Banking loans.

• when Nepal Rastra Bank monitors the debtor and finds out - that the cash flow or the project operation of the debtor is weak, then the central bank may direct such bank and financial institutions to keep such loans and advances in its watch list category.