February 4: Nepal Rastra Bank has expanded its regulatory ambit to supervise non-banking sector. NRB has set up a Non-Bank Financial Institution Supervision Department to indirectly regulate large financial transactions in institutions other than banks and financial institutions licensed by the NRB. 

The department formed by the meeting of the NRB Management Committee on January 24 has been assigned the role of supervising and monitoring the foreign regulatory entities, Hydro Electricity Development Company and National Cooperative Bank. 

"For the time being, the department has been set up to regulate non-financial institutions licensed by the central bank," said NRB spokesperson Gunakar Bhatta, "Once legally clear, other non-financial institutions that conduct financial transactions can also be regulated."

Governor of NRB Maha Prasad Adhikari had been saying in formal programs that the department would be formed in such a way as to indirectly regulate even the institutions which are not under the direct regulation of NRB. 

At present, cooperatives, Employees Provident Fund, Citizen Investment Fund, Social Security Fund and other institutions have been conducting financial transactions besides BFIs.  

The cooperatives registered under the Cooperatives Act have been directly regulated by the Federal Department of Cooperatives as well as the provincial and local levels. Cooperatives currently have a transaction of Rs 700 billion. 

Although the Federal Cooperatives Act mentions that even the NRB can regulate the institutions doing more than 500 million transactions, it has not done so yet. As the problem in cooperatives is increasing, the Department of Cooperatives is preparing to take the assistance from NRB for monitoring. 

Similarly, Employees Provident Fund, Citizen Investment Trust and Social Security Fund have been regulated by separate acts. These organizations have also been mobilizing funds for employees of the formal sector.  

Similarly, NRB has also formed the Financial Institution Supervision Department by merging Development Bank and Finance Company Supervision Department. After the number of development banks and finance companies decreased due to mergers and acquisitions, a new department has been formed by merging the two departments. 

The number of development banks and finance companies has decreased significantly after NRB encouraged mergers by issuing merger and acquisition procedures in 2068. The number of development banks, which was 90 in 2070, has decreased to 18 in 2078. Similarly, the number of finance companies which was 79 has also decreased to 17.