Kathmandu, June 21

Dairy entrepreneurs have claimed that sales of pasteurised milk have come down since the past week following the recent ‘soda scam’.

An inspection carried out in the dairy firms by the Department of Food Technology and Quality Control (DoFTQC) last week had found that different brands of packaged milk being sold in the domestic market were adulterated with various chemicals including washing soda.

Following this, consumers have become reluctant in consuming packaged milk, dairy entrepreneurs said.

“Consumption of packaged milk has come down by more than 30 per cent since last week,” informed Praladh Dahal, general secretary of Nepal Dairy Association (NDA).

As per NDA statistics, almost five million litres of milk is consumed across the country every day.

However, Dahal cited that traces of soda and other chemicals found in pasteurised milk is not the fault of dairy firms as such chemicals are mixed at the milk collection centres.

“As the temperature has been soaring in recent days, both farmers and milk collection centres use such chemical ingredients to prevent milk from curdling,” informed Dahal.

Dahal urged the government to adopt measures to prevent the use of washing soda in packaged milk by farmers and milk collection centres.

Earlier last week, DoFTQC had collected 42 samples of packaged milk from 25 dairy companies. When the samples were tested, a majority of these milk samples were found to have used chemical ingredients including sodium hydroxide (caustic soda), bicarbonate and sodium carbonate.

Meanwhile, the government is preparing to develop a guideline to check the quality of milk in the domestic market following perennial complaints that packaged milk supplied in the market does not meet international quality standards.

A separate committee at the Ministry of Livestock Development (MoLD) is preparing the draft of a guideline on the quality of milk.

Currently, the government has been monitoring the quality of foods, including milk, based on the Food Act, 2028. However, the quality guidelines of foods incorporated in the Food Act, 2028, have become obsolete in the current context.

Kathmandu, June 21

Altogether 308 transport bodies (associations and committees) have registered themselves at the Department of Transport Management (DoTM) after completing their company registration process in the last two months.

Following the decision of the government to scrap all transport bodies on April 11 intending to bring their businesses under the company registration process, transporters are gradually registering their committees and associations at the Office of Company Registrar (OCR).

As per the earlier decision of the government, DoTM will not renew registration of existing transport bodies under the current format.

Despite this plan of the government, a majority of transport bodies including some renowned transport associations like Narayani Transporters’ Association, Araniko Transport Association and Prithivi Highway Bus Entrepreneurs’ Association, among others are yet to start company registration process.

This shows that transport entrepreneurs are still hopeful that the government might reverse its earlier decision and allow transport bodies
to operate by registering themselves at the district administration offices.

In fact, the recent moves made by the Ministry of Physical Infrastructure and Transport (MoPIT), including the decision to transfer the DoTM leadership that has slowed down the pace of government’s campaign to end transportation syndicate seems to have boosted the morale of transport entrepreneurs.

Moreover, transport entrepreneurs are learned to have been pressurising MoPIT and officials of the Ministry of Home Affairs to support the syndicate system.

Tulsiram Aryal, spokesperson for DoTM, said that though company registration at OCR is mandatory for transport bodies to renew their registration, a number of transport association are yet to register themselves at OCR.

However, Aryal clarified that DoTM will not renew the registration of any transport association/committee unless they complete the set legal provisions. Moreover, he also informed that DoTM will not issue vehicle route permit to vehicles of those transport bodies that are not registered at OCR.

Making transport bodies operate as a company will not only end the syndicate practices in the transportation industry, but will directly increase revenue worth billions of rupees for the government.

There are hundreds of transport bodies registered as non-profit associations at the district administration offices. However, though these transport bodies are functioning as commercial organisations and making huge profits, they are beyond the income tax net of the government.

Bringing these transport bodies under OCR will bring the public transportation sector, which has transactions worth billions of rupees annually, under the income tax net of the government.

Kathmandu, June 21

Due to unhealthy competition among banks to woo deposits by offering high interest rates on deposits after the removal of the ‘agreed’ interest rate ceiling on June 10, the Nepal Bankers’ Association — the umbrella body of class ‘A’ financial institutions — has again fixed the ceiling on interest rate in deposit schemes.

According to Gyanendra Prasad Dhungana, president of NBA, commercial banks agreed to keep the interest rate on fixed deposits below 11 per cent and that on saving deposits below seven per cent. Interest rates on deposits had sky-rocketed after NBA removed the ceiling a fortnight ago. Bankers agreed to keep the interest rates at the aforementioned threshold after the Ministry of Finance asked government-owned institutions, such as Citizen Investment Trust, Employees Provident Fund and Insurance Board, to look into the sustainability of interest rates. The MoF has expressed anxiety over the unsustainably growing bank interest rates irrespective of the inflation. Average inflation in the first 10 months of this fiscal was 4.1 per cent.

Around this time in the previous fiscal years, deposit rates used to take a dip due to higher development expenses of the government. However, government expenses have yet to gather pace this fiscal as only around 50 per cent of the capital budget has been spent in the 11 months of this fiscal, according to the Financial Comptroller General’s Office.

As per bankers, credit demand is high this year, but the sources for deposit collection are limited.

Ashoke Shumsher Rana, CEO of Himalayan Bank, said banks were under pressure to lift the agreed ‘ceiling on interest rate’ as institutional depositors started bargaining with the banks where they deposit their funds.

Due to under-utilisation of the capital budget, weak remittance growth and sluggish exports, deposit growth has been sluggish throughout the year. Against this backdrop, if banks start competing on deposit rates, that will invite risk in the financial market.

Nepal Rastra Bank has also asked NBA to maintain ‘discipline’ while competing on deposit rates, citing risky behaviour of some financial institutions, according to bankers.

“Interest rate on lending is also expected to stabilise as banks won’t breach the interest rate ceiling they have agreed upon,” stated Rana.

The lending rate has remained high throughout the fiscal and there is no sign of it coming down. Bhuvan Kumar Dahal, CEO of Sanima Bank, said loan demand was still high and banks were disbursing even the already committed loans gradually in various tranches based on the increase in deposits.

According to NBA, till the 11th month of this fiscal, the total deposits collected by the banks stood at Rs 256 billion, whereas banks had floated loans worth Rs 342 billion.

Banks can issue loans of up to 80 per cent of the sum of deposit and core capital. Deposit of the banks stood at Rs 2,256 billion, while total loan portfolio of the banks stood at Rs 2,063 billion. The growth of deposits stood at 11.3 per cent, whereas loans grew at 16.5 per cent in the review period.

READ ALSO:

• Will decision to regulate deposit rates bring down credit rates?

• One reason for deposit rates rising is the slow public capital spending

Kathmandu, June 21

The Nepal Bankers’ Association (NBA) has once again decided to regulate deposit rates without providing assurance of reining in runaway lending rates. This is an indication that commercial banks are more interested in reducing their expenses by forcefully lowering deposit rates, while maximising their income by keeping lending rates high.

The NBA today barred all 28 commercial banks from offering annual interest of over 11 per cent to retail depositors who park money in fixed deposit accounts. The interest threshold on funds deposited by institutional depositors in fixed accounts has been set at 10.5 per cent. The NBA has also said yields on money parked in savings deposit
accounts should not exceed seven per cent.

The decision to regulate deposit rates was made as banks ‘started engaging in unhealthy competition to poach deposits from other institutions, pushing up interest on deposit’, according to Sanima Bank CEO Bhuvan Dahal, who had attended the NBA meeting.

Deposit rates are lately rising largely because of moderate growth in remittance income, slow public capital spending and soaring imports, which is triggering capital flight. These reasons had prompted interest on institutional fixed deposit to surge past 13 per cent recently. This deposit rate would have been acceptable to many around two years ago when inflation stood in double digits. But now inflation has cooled down to 4.1 per cent, meaning the value of money is eroding at a lot slower pace than before. It is also believed that inflation will hover around this level in the foreseeable future if the government manages to remove supply constraints, as India, from where most of Nepal’s imports come from, has introduced a policy of limiting inflation in the range of two to six per cent.

These developments suggest deposit rates should not be too high, said Sashin Joshi, former CEO of Nabil Bank. “Having said this, I do not quite like the practice in which NBA is making intervention, as it will set a bad precedence,” Joshi added.

The NBA is an umbrella body of commercial banks and lobbies to protect their interest. However, it is not authorised to regulate interest rates. But this is not the first time the NBA has resorted to this measure. It had put a ceiling on deposit rates earlier too, but had later rolled back the decision after banks started breaching the threshold set by it.

How long will the banks abide by NBA’s latest instruction is not known. But what is surprising is that the NBA had acted on the advice given by Nepal Rastra Bank (NRB), the banking sector regulator.

“We called representatives of banks which were raising deposit rates for a meeting and told them to work towards stabilising the deposit rates,” said NRB Spokesperson Narayan Prasad Paudel. “The latest initiative taken by banks to stabilise deposit rates is rational.”

This raises the question on who regulates Nepal’s banking sector: the NBA or the NRB?

“Of course it is our responsibility to ensure banking sector stability,” said NRB’s Paudel. “But we only have indirect instruments to make interventions. What is needed at the moment is direct intervention. But we cannot do that, as it would be against the policy of market economy,” said Paudel.

But Joshi does not want to buy this argument. “The NRB cannot shirk from one of its primary responsibilities of ensuring interest rate stability,” Joshi said. “If it does not have an instrument, it should create one. Where is innovativeness?”

The NRB should shoulder the responsibility of stabilising interest rate because along with deposit rates, lending rates also need to be kept within a certain band so that they are affordable to borrowers. Currently, credit offered by banks is expensive than that of microfinance institutions, which are barred from charging lending rate of over 18 per cent.

The issue of containing lending rates was raised during NBA’s meeting today. “But most of the NBA members said drop in deposit rates would automatically bring down lending rates,” two bankers, who had attended the meeting, said.

But this has not been the case in the past.

When the NBA regulated deposit rates in the past, lending rates had continued to surge, raising the debt servicing cost of borrowers. So, the possibility of regulated deposit rates failing to contain lending rates cannot be ruled out. Such a scenario will bring more suffering to borrowers, especially enterprises, which cannot afford to pass all of the additional debt servicing cost to consumers because of chances of losing competitive edge.

“The problem of high interest rates stemmed from haphazard credit disbursement in the first quarter of this fiscal year,” said NRB’s Paudel, calling the move short-sighted, as credit was expanded without identifying proper deposit collection sources. Because of this, credit disbursement of commercial banks has surpassed deposit collection so far this fiscal year. Commercial banks collected Rs 270 billion in fresh deposits since the beginning of this fiscal year in mid-July through June 15, but disbursed Rs 334 billion in loans in the same period, shows NBA’s latest report.

“Unless banks fail to strike a balance between assets (credit disbursement) and liabilities (deposit collection), the problem will continue to recur,” Paudel said.