KATHMANDU: Despite growing problems in cooperatives that handle large transactions similar to commercial banks, Nepal Rastra Bank (NRB) has indicated that it will not assume direct responsibility for their regulation and supervision.

In March, the Federal Parliament amended both the NRB Act, 2058, and the Cooperatives Act, 2074, bringing cooperatives engaged in savings and loans of a certain size under NRB's regulatory scope. This amendment empowered NRB to issue instructions and standards for the regulation, inspection, and supervision of these cooperatives, specifically those with a share capital exceeding Rs 500 million or an annual turnover above a specified threshold. It also allowed NRB to take action in accordance with the NRB Act.

However, despite the amendment, NRB has not yet issued standards or taken responsibility for regulating and supervising cooperatives. The monetary policy for the current fiscal year 2024/25 merely announces that the government will facilitate the creation of a separate agency to handle cooperatives and will work to return savings of up to Rs 500,000 to the depositors of troubled organizations, as mentioned in the current fiscal year’s budget.

Even though NRB is not directly responsible for monitoring cooperatives, it has been noted that issues within cooperatives impact the broader economy, especially concerning monetary policy. Resolving these issues could boost economic activity and improve loan recovery for banks.

The government’s budget has promised to create a separate mechanism for regulating and supervising savings and credit cooperatives and to arrange for the return of up to Rs 500,000 of savings to the members of troubled cooperatives through property mortgage of the operators. NRB has pledged to support these arrangements.

Previously, the Cooperatives Act, 2074, allowed NRB to monitor cooperatives with an annual turnover exceeding Rs 500 million. However, NRB has largely ignored this sector due to the lack of a corresponding provision in the NRB Act.

After the law's amendment, NRB was expected to assume responsibility for setting standards and monitoring cooperatives but has neglected to do so.

Executive Director of NRB, Guru Prasad Paudel, stated that internal preparations are underway to develop standards and guidelines according to the law, even though the monetary policy has not yet included this aspect. He mentioned that the NRB would only monitor based on recommendations from the Department of Cooperatives, and would act on those recommendations if needed.

In February, NRB sent three officials to the department to monitor cooperatives, but they returned in May without any significant achievement.

According to the Cooperatives Act, 2048, savings and credit cooperatives must obtain permission from NRB to conduct banking transactions. Despite this, 43 cooperatives had obtained permission but did not engage in banking transactions. NRB opted to revoke licenses of 14 cooperatives after the enactment of the Cooperatives Act, 2074, withdrawing from direct monitoring.

Bank officials express concerns that taking quick responsibility of cooperatives might risk discrediting NRB as the cooperatives are struggling with corporate good governance issues. One official noted that the protests at the Department of Cooperatives might shift to the NRB head office in Baluwatar, suggesting NRB should avoid hasty action.

Sudarshan Dhakal, former registrar of the Department of Cooperatives and a cooperative expert, argues that NRB cannot evade its responsibility for managing financial transactions of cooperatives. He points out that many countries have central banks regulating savings and credit cooperatives.

Cooperative activists are lobbying for NRB’s involvement as a secondary regulator.

Currently, cooperatives are monitored by the Department of Cooperatives at the federal, state, and local levels. However, after the transfer of regulatory authority to provincial and local levels, weak regulations have led to increased cases of misappropriation, directors becoming unresponsive, and members struggling to recover their savings.

To address these issues, a recommendation working group led by Dr. Jayakant Raut, a member of the National Planning Commission, has suggested that NRB should monitor cooperatives engaged in large transactions.

Instructions to Contact Over a Dozen Operators of Cooperatives

Meanwhile, the parliamentary special committee investigating the misappropriation of cooperatives’ savings has directed the Ministry of Home Affairs to locate 18 individuals who have been out of contact after engaging in savings misappropriation, embezzlement, and fraud.

Chairman Surya Thapa reported that these 18 individuals, who absconded after the misappropriation of members' savings, have been instructed to come in contact with the committee. The committee's directive includes contacting GB Rai, Gyan Bahadur Bomjan, Than Bahadur Budhamagar, and Bhupendra Rai of Suryadarshan Cooperative in Pokhara; Bharat Maharjan, Rajmaya Maharjan, Sachin Maharjan, and Sarla Maharjan of Sumeru Cooperative; Tej Bahadur Bamjan and Lilanath Gautam of Shivashikhar Cooperative; Devkumar Nepali, Dipak Paudel, and Cheda Nepali of Image Cooperative; Tasvir Khatun and Ashraf Ali of Sano Paila Cooperative; Sahara Chitwan's Subas KC; Meda Dream Multi-Purpose’s Mahashankar Regmi; and Kantipur’s Premdhwaj Lama.