Nepal Bankers’ Association (NBA), the umbrella body of commercial banks, has called upon Nepal Rastra Bank (NRB) to ensure uniformity in laws governing the remittance sector, as bankers complained that a recent circular issued by the central bank unduly favours remittance companies.

In a letter written to NRB, the NBA said provisions such as the one that proposes to make it mandatory for commercial and development banks to make remittance payment through bank accounts create an uneven playing field because the NRB allows ‘remittance companies to make direct cash payments’.

If provision comes into force, it would not only cause banks to lose business but ‘encourage Nepalis employed abroad to rely on informal channels to transfer funds home as the banking network has not expanded to many rural areas’. “At a time when NRB is mulling over putting a cap on cash transactions, it should make it mandatory for everyone engaged in remittance business to make remittance payments of over Rs 100,000 through bank accounts,” says the NBA letter.

On November 30, NRB issued a circular directing commercial and development banks to start making remittance payments to beneficiaries through bank accounts within a year. This means banks should not deal with remittance recipients who do not have a bank account, while remittance companies could do so.

Among others, the circular also made it mandatory for banks to use same exchange rate here and abroad. This provision, along with others, would come into effect within 90 days of issuance of the circular, as per NRB. Although bankers have welcomed many of the provisions incorporated in the circular, some of them, they say, tend to unnecessarily favour remittance companies.

Like, the provision on use of common exchange rate here and abroad gives undue advantage to remittance firms as public exposure of such rates would provide leverage to those engaged in illegal money transfer business to mark up exchange rates to rope in clients, says the NBA letter. NRB had introduced the provision after detecting inconsistency in fixation of exchange rates for domestic and overseas purposes. In other words, banks were found fixing exchange rate of, say, Rs 98 per dollar for domestic purpose, and inflating that to, say, Rs 101 per dollar in countries like Malaysia and UAE to attract migrant workers, triggering unhealthy competition.

Bankers are aware of these practices. “But the measure currently proposed by NRB would have severe repercussions in remittance business and increase flow of funds through informal channels,” says NBA. To address this problem, NBA has proposed that banks be allowed to add some premium to exchange rates fixed twice a day by the Foreign Exchange Dealers Association of Nepal (FEDAN). “The threshold on premium could be fixed by NRB,” says the letter, adding, “The rates fixed by FEDAN could be made available to remittance firms through Nepal Remitters Association.”

NBA has also asked NRB to create a level playing field on pre-payment system, as the circular allows remittance firms to make payments on basis of commitment letter extended by counter parties, while banks can do so only after receipt of actual fund or on basis of bank guarantee. 

Contentious issues

• NBA says making it mandatory for commercial and development banks to make remittance payment through bank accounts would encourage Nepalis employed abroad to rely on informal channels to transfer funds home

• NBA says everyone engaged in remittance business should compulsorily make payments of over Rs 100,000 through bank accounts

Published on: 13 December 2014 | Himalayan times