The budget for the fiscal year 2068/69 is out. The size of the budget is larger than its predecessors at around Rs. 385 billion. The budget has taken the cooperative sector as the main pillar of the economy. It aims at setting up a cooperative fund for the mobilisation of the financial sector with the slogan ‘Cooperatives in Villages, Employment in Every Household’.

Monitoring cooperatives

There are over 20,000 savings and credit cooperatives in the country, which are being monitored by the Cooperative Board. The budget has made provision for subjecting the co-operatives having an annual turnover of over 50 million to NRB monitoring and supervision. However, given the fact that NRB has not been able to effectively monitor and supervise the existing banks and financial institutions, it would be a difficult proposition to take upon itself the task of monitoring and supervising the particular co-operatives.

The budget has not brought out any special programme for the banking and financial sectors; however, it has introduced some measures, directly or indirectly, for the improvement of these sectors. The most important aspect of the budget is its timely announcement. In the previous years, the delays in budget announcements badly affected liquidity management in the banking and financial sectors due to the failure of the government funds to reach the banking channels in good time.

With the timely announcement of the budget this time around, it is expected that government spending in the development projects will take place in full swing and the government coffers will not remain idle. As a result, the funds will find their way into the banking channels, helping minimise the liquidity crunch to some extent.

The budget is positive from the viewpoint of the realty sector. Due to stringent measures enforced by the Nepal Rastra Bank (NRB) in the realty business, the real estate business is now in the doldrums. Due to the ceiling imposed on the realty loans as per the measures and also due to a hike in interest rates, banks and financial institutions are finding it difficult to recover the loans.

The budget has provided for obviating the need for disclosing sources for the purchase of land and buildings worth up to Rs. 10 million, which was Rs. 5 million in the last fiscal year. However, the budget has not addressed the ceiling on realty loans disbursed by banks and financial institutions. Similarly, the budget has retrenched the capital gains tax on the profit from the sale of land and buildings from 10 per cent to 5 per cent. As a matter of fact, such a tax needs to be totally scrapped.

Even before the announcement of the budget, NRB had made provision for not including house and land loans up to Rs. 8 million, up from Rs. 6 million, in the realty sector category. This provision, together with the budgetary provision, has generated some relief among the people.

The budget has also allowed non-resident Nepalese with government identity cards to buy commercial and residential flats and apartments. Even foreign individuals and companies are now allowed to buy flats and apartments worth over USD 200,000. This provision will give a shot-in-the-arm to the sagging flat and apartment business.

Similarly, the budget has tried to address the problems associated with the sluggish share market. The capital gains tax on the profit from share transactions has been slashed by 5 per cent. Provision has been made for enabling non-resident Nepalese to buy shares. The government will introduce an electronic transaction system whereby shares can be transacted from major cities and abroad. The government will also implement the centralised deposit system to make transactions in listed shares effective and IT-friendly.

In order to enhance public faith in the banking and financial sectors, the budget has provided for a deposit insurance of up to Rs. 05 million in commercial banks as well. In the past, a deposit of insurance of up to Rs. 0.02 was in force in development banks, finance companies and micro-credit development banks. This provision will help boost deposit mobilisation in the banking and financial sectors, as the public will rest more assured that their deposits are safe.

The budget has modified the provision for disclosing sources for deposits of Rs. 1 million and above. From now onwards, no such disclosure needs to be made. But a self-declaration that the funds did not come from illegal activities (drug trafficking, human trafficking, terrorism, organised crime, etc.) needs to be made.

The budget has also accentuated the implementation of the money laundering act. For this, a five-year strategy will be formulated for the effective implementation of the act.

The budget has tried to control anomalies arising from lack of good governance. It has provided for strong action against those loan clients who misuse their loans by investing the loans in the sector other than that for which the loans have been availed of and against those who willingly default on the repayment of their loans.

Capacity building of NRB

The budget has also taken measures to strengthen the capacity building of NRB, the regulatory body, so as to make effective the supervision and monitoring of banks and financial institutions. For this, the high-level financial institution coordination committee will be reinforced. The government-owned banks and financial institutions will also be restructured, and additional capital will also be injected into them, if need be.

The above provisions made in the budget should be taken on a positive note. They will help the banking and financial sectors to some extent. Banks and financial institutions can heave a sigh of some relief. The budget is, therefore, somewhat enlivening for the banking and financial sectors.