Duties and Obligations of Commercial Banks – बैंकको दाइत्वहरु
The commercial banks need to fulfill the following obligation formulated by the Nepal Rastra Bank.
1) Maintaining Cash Reserve Ratio (CRR)
Cash reserve ratio (CRR) is the certain (%) amount of total deposit that needs to be deposited in the Central Bank. The bank should deposit the amount in the Nostro account of Nepal Rastra Bank.
The objective of maintaining the cash reserve is to prevent the shortage of funds in meeting the demand by the depositor. As per the direction of Nepal Rastra Bank (Central Bank), the amount of reserve to be maintained by commercial banks are as follows-
For A, B, C Banks = 4% of the total deposit
For D = 0.5% of the total deposit if deposit only from a member of the bank, otherwise 2% if deposit from external depositors.
2) Maintaining Statutory Liquidity Ratio (SLR)
The Statutory Liquidity Ratio (SLR) refers to the proportion of deposits the commercial bank is required to maintain with them in the form of liquid assets in addition to the cash reserve ratio.
For A = 10%
For B = 8%
For C = 7%
For D = 4%
3) Maintaining CD Ratio
Credit to Deposit Ratio (CD Ratio) is a commonly used statistic for measuring a bank’s liquidity by dividing the bank’s total loans by its total deposits. This number is expressed as a percentage. If the ratio is too high, it means that the bank may not have enough liquidity to cover any unforeseen fund requirements, and conversely, if the ratio is too low, the bank may not be earning as much as it could be.
CD Ratio = Credit/Deposit * 100%
It should not be more than 80%.
4) Maintaining CCD Ratio
CCD Ratio is a credit to core capital cost and deposit ration.
CCD Ration = Credit/Core Capital Cost + Deposit * 100%
It should not exceed more than 80%.
5) Maintaining Paid-up Capital
A bank should maintain the following paid-up capital
| Class | Name | Paid Up Capital in Crore | Previous Provision (Before 2072/73) | Provincial Level |
|---|---|---|---|---|
| A | Commercial Bank | 800 Crore (8 Arab) | 200 Crore | ——– |
| B | Development Bank | 250 Crore | 64 Crore | 120 Crores |
| C | Finance Company | 80 Crore | 30 Crore | 50 Crores |
| D | Micro Finance | 10 Crore | 10 Crore | 2 Crores |
6) Maintaining CAR
Capital Adequacy Ratio (CAR) is a measurement of a bank’s available capital expresses as a percentage of a bank’s risk-weighted credit exposures.
| Class | Primary Capital Adequacy Ratio | Total Capital Adequacy Ratio |
|---|---|---|
| A | 6% | 8.5% |
| B (national level) | 6% | 10% |
| B,C | 5.5 % | 11% |
| D | 4% | 8% |
7) Maintaining Loan Classification of Provisioning
A bank should allocate the following loan loss provision.
| Loan Classification | Meaning | Provision |
|---|---|---|
| Pass Loan | Not overdue/Overdue up to 1 month | 1% |
| Watchlist | Overdue up to 3 month i.e 1-3 months | 5% |
| Sub-standard | Overdue up to 6 months i.e 3-6 months | 25% |
| Doubtful | Overdue up to 1 year i.e 6-12 months | 50% |
| Loss | Overdue for more than 1 year | 100% |
| Restructuring and Rescheduling | Changes made in loan timing (credit period) and terms and condition (other structure) in between | 12.5 % for Pass Loan 25% for substandard 50% for doubtful 100% for loss |
8) Maintaining SOL
The Single obligor limit is the maximum amount a bank is allowed to lend a single borrower or an individual in relation to its total shareholder’s fund. Single obligor limit for Nepali commercial banks is up to 25% of primary capital for the funded and non-funded facility.
9) Follow Accounting Policy & Standard as Prescribed by NRB
Accounting can be done on a cash basis and mercantile/accrual basis. All the income are recorded in cash basis whereas expenses are recorded in mercantile or accrual basis.
10) Maintaining Corporate Governance
Each and every bank must follow the policy, rules, and regulation set by the Bank and Financial Institutions Act 2073, Nepal Rastra Bank Act 2058, Unified Directives of Nepal Rastra Bank and other regulatory bodies. Besides these regulatory bodies, a bank has it’s own internal policies which have to be followed in order to maintain the corporate governance.
11) Maintaining Reserve
Banks can allocate a certain amount of money in reserve if there is a high profit. Each year bank should allocate 20% of its profit in general reserve fund until it exceeds the double of its total paid-up capital. After exceeding the double of paid-up capital only 10% is allocated in general reserve fund. Likewise, 25% of income from foreign exchange transaction will be allocated for the foreign exchange reserve fund.
12) Follow the Instruction of NRB
All the commercial banks must follow the rules and regulation set by the Nepal Rastra Bank.
These are the obligation of commercial banks.