Towards the end of the year 2000, this writer decided to acquire a new vehicle, and since there was a need to borrow half of the amount needed, a bank was approached which readily agreed to provide me the loan at an interest rate of 13 per cent. The loan was for a five-year period with a fixed EMI (equal monthly installment).

I repaid the full loan within three years, but during the three years, the interest rates had come down, and new car loans were being given out at the new interest rate than what I had been charged. The concerned bank did not deem it fit to reduce the interest on my loan in proportion to the fall in the general interest rate.

Last year, a close relative of mine applied for and received a car loan at just over eight per cent. But less than eight months later, the interest rates had begun to rise, and the bank notified my relative that the interest rate on the car loan would increase by just over one per cent.

Like moneylenders

The point to note is that the banks are not showing the same kind of alacrity in reducing the interest rate on the already agreed upon interest rate for a definite period - usually five years - when the general interest rate falls than in raising the interest rate on the loans when the interest rates rise.

Additionally in mid-October last year, I used a credit card to draw some money (fifteen thousand to be exact). As usual within days, I received a statement from the bank outlining the amount due to the bank, including the cash advance fee and financial charges. The total charge that had to be paid was 311.64 rupees. In all, I owed the bank 15,311.64 rupees.

The minimum amount to be paid to the bank by the due date was 1,000 rupees, and this had to be paid by November 6. Since the total amount had to be paid anyway, I decided to pay the full amount on November 5, a day before the due date. But the bank acting on its own had already auto-deducted 1,000 rupees from my account, and my payment of November 5 was also subjected to finance charges amounting to 164.59 rupees.

In effect for a three-week-long bank loan of 15,000 rupees, I paid a total of 476.23 rupees in interest. Under whatever heads the amount is arrived at finally, it is the bank customer that has to pay the amount. The amount works out to roughly over 38 per cent per month. Are such charges just?

This is just an example of just how easily the mainstream commercial banks in this country take the form of the legendary village lenders who are supposed to thrive by exploiting the weakness of the villagers, mainly farmers.

Appearing to help the needy villagers in times of need, the village moneylender finally ends up possessing the poor villagers’ property. There are many who think that the banks are a modern - mainly urban in countries like Nepal - version of the greedy unscrupulous village moneylender. The banks legally fleece their customers even as the village moneylenders do so illegally.

The Nepal Rastra Bank, the country’s central bank, after many pushes and pulls, finally has a new governor to oversees the country’s banking sector and presumably to advise the government on its monetary and fiscal policies. These are lofty goals and principles which the ruling elites might or might not go by.

The new governor has, in addition, to cope with the problem of ever widening balance of trade and payments in addition to the cash crush and the shortage of Indian currency which is almost legal tender in this country. (Unlike in the past when efforts were made to make the widest possible use of the Nepalese currency, individuals, shops and others freely accept Indian currency these days, indicating the extent to which the country has begun depending on our neighbour.)

These and other macro-level financial, monetary and economic issues need to be addressed properly in a concerted manner by the government in cooperation with the central bank. But with the new chief in place, the central bank needs to ensure that the banks and other financial institutions provide adequate services to the people at the minimum of costs.

Many of the commercial banks and financial institutions were established by well-known business and industrial personalities. The new governor has pointed towards this. The banks, acquiring money from ordinary depositors, serve the interest of their owners (or majority share holders), and this is one of the main reasons for embellishing banks - to get substantial loans on easy terms. The result of continuation of such a trend cannot bode well for the economy or for the bank concerned.

We have already had a failed bank, but when it failed, did the central bank, said to be the bankers’ bank, do a good job in protecting the interests of the bank customers, most of whom by nature are small time depositors? Compared to what the customers, including stock holders, must have gone through, problems like my experience with the bank are insignificant. And it is in the interest of the small time investors and depositors that the new leader of the central bank should be concerned, apart from the larger prospective with which he has to look at other national issues.

The safety of the deposits of small time savers is of crucial importance in the present context when so many banks have come up, all aiming at the savings of the people. But even more important are the numerous financial institutions that have sprung up like mushrooms across the country, and these institutions promise higher interests on deposits than the regular banks in order to attract small depositors.

Pleasure or woe?

It is mandatory that the central bank, which authorises the operations of banks and financial institutions in the country, ensure that the people are not ensnared into placing deposits only to see their deposits - as also the financial institution - vanish in thin air the next day. The new governor would do this country and its people a world of good if the central bank can ensure that the failure of any bank or finance company will not erase out the depositor’s lifelong savings.

There are countries where deposits are insured, and this means that even if the bank or the financial company fails, the depositors can rest assured that his or her savings remain unaffected. Will the new governor dare to initiate moves to make such a scheme possible in this country also? Banking should be a pleasure for the customers, not a woe.

courtesy:Shyam K.C. , rising nepal