August 10: As the savings and credit cooperatives under increasing pressure due to liquidity crisis, the operators of the cooperatives have been pressing increase in reference interest rate of the cooperatives.

The cooperatives have been demanding a review of the reference interest rate, saying that after the banks and financial institutions increased the interest, the deposits started moving from the cooperatives to the banks. The Federal Cooperative Department has been applying a reference interest rate of 16 percent on cooperatives since February 27. The interest rate fixed four months ago is not relevant in the market and the cooperatives have launched a campaign demanded its review.

Paritosh Paudyal, president of Nepal Federation of Savings Credit Cooperative Unions Ltd (NEFSCUN), said that as banks and financial institutions are paying high interest on deposits due to lack of liquidity, the reference interest rate of cooperatives should also be changed.

 “The interest rate of banks has reached as much as 19 percent at present. If the reference interest rate of cooperatives is not reviewed in time, it may create a situation where cooperatives might have to violate it,” he said.

In February, the reference interest rate determination committee meeting decided to hold a meeting every 4 months and review it. However, the meeting of the committee has not been held even after 4 months after the implementation of the interest rate.

Om Devi Malla, Senior Vice President of the National Cooperative Federation and member of the Interest Rate Recommendation Committee said that the department is reluctant to hold a meeting of the committee.

“We requested the registrar to call a meeting according to the decision of the committee. However, the registrar refused to call the meeting stating that the minister does not think the interest rate should be increased,” she said.

Some time ago, Minister for Land Management, Cooperatives and Poverty Alleviation Shashi Shrestha said during a public programme that the reference interest rate should not be increased under any circumstances.

Amid increasing pressure  to revise the interest rate, the department formed a technical committee under the coordination of Deputy-Registrar Tolraj Upadhyay. General Manager of National Cooperative Federation Chitra Kumari Subba, Chief Executive Officer of National Cooperative Bank Badri Kumar Guragain and Chief Executive Officer of NEFSCUN Prakash Prasad Pokharel are members of the committee. Department sources say that the committee is ready to hold a meeting only after the technical committee submits its report.

After the reference interest rate was not reviewed earlier in February, the cooperatives under the leadership of the Federation of Cooperatives staged a sit-in protest at the department.

In order to manage the interest rate of the cooperatives, the Cooperatives Act 2074 has a provision for the reference interest rate. According to section 51 of the Act, there will be an arrangement for representative members of the Ministry of Cooperatives, Ministry of Finance, Nepal Rastra Bank, National Cooperative Development Board, Federation of Cooperatives and Subject Cooperative Associations under the coordination of the Federal Registrar.

According to the provisions of the Cooperative Act and Regulations, there is a provision to determine the reference interest rate for cooperatives based on the average interest of commercial banks, the average interest of savings and credit cooperatives, and the average interest of cooperative banks.

Although the reference interest rate is the maximum limit for the interest on loan investment of cooperatives, it has not been effectively implemented. However, due to lack of liquidity, institutions operating in urban areas are charging higher interest rates than the fixed rates.

Minraj Kandel, president of the National Cooperative Federation said that the problem of liquidity increased due to the increase in the number of people demanding the return of savings in some cooperatives. He added that in this situation, it is necessary to increase the reference interest rate in order to increase the deposit interest rate.

Earlier, in an appeal issued last Sunday, the Federation of Cooperatives also demanded to review the reference rate saying that the limit has caused difficulties to the cooperatives. Similarly, the Federation has been advocating for a system of automatic interest rate of the cooperative based on the market.