Rastra Bank Seems Confused: Is the Central Bank Regulator of Financial Institutions or Regulator of the Stock Market?

- Just a small investor in NEPSE.

Fews days back, Nepal Rastra Bank came up with some fresh regulations towards Banking and financial institutions amending provisions related to the trading of securities in the secondary market. Scrolling among social networks and analyzing conversations of general investors, there seems to prevail widespread anticipation about the effect of the latest directive issued by NRB on the stock market in days to come. Here are few questions that have arisen in heart of general investor that remain unanswered by NRB:

1. Is the central bank a regulator of banks and financial institutions or regulator of the stock market?

The central bank seems confused about its role. What is the reason behind the amendment of the provision of trading of securities by BFI all of a sudden? If any BFI is found of being over-involved in risky trading of securities by betting public money, NRB needs to punish the wrongdoers. It should not pass the cost of such malpractices of some BFIs into the heads of general investors. What if due to the same reason, the stock market crashes? Who will compensate general people for their wealth lost due to a step taken by the regulatory body? The stock market should be free from the intentional interventions of all parties, including the government.

2. All the Acts/Ain/Kaanoon are promulgated through the legislature by comprehensive discussion among representatives of people and related stockholders. However, prevailing laws of the land have provided autonomy to NRB and it has been entrusted with such power that the directives/instructions which are issued by NRB have the same implications as other laws/acts of the nation.

This power entrusted to NRB seems to have been misused by the central bank time and again. Any directive issued by it comes all of sudden as a surprise to the financial sector. If the directives are equal to other acts/laws of the nation, shouldn't the instructions be issued after proper discussion with related stakeholders? The recent directive regulating investment of shares by BFI has implications not only for the banking sector but the overall financial future of the general people. Why was the directive issued without any comprehensive discussion?

3. NRB does not seem to have stability in its policies. Unstable policies of NRB have hindered BFIs from preparing long-term policies and implementing strategic decisions. What will be the fate of banks and financial institutions two years from now? Even matured bankers cannot predict the future of the Nepalese economy due to the unstable policies of NRB. Issues like big mergers, increment of capital, promotion of digital banking, reduction of operation cost, increasing financial access seem contradictory among themselves. What new regulations may be added by NRB tomorrow morning, only God knows. Shouldn't NRB prepare a clear financial calendar for its activities? Isn't it odd for the central bank to issue a directive in the afternoon and perform compliance of it the same evening?

4. Future of every person in modern times is directly or indirectly intertwined with the stock market. Your insurance company where you or your home have been insured has invested in the share market to provide you financial security. Your finances for retirement parked at retirement fund like SSF, EPF, CIT have investments in the stock market. However, all of a sudden, the directive issued by the regulatory body without discussions with other stakeholders of the financial market may cause serious problems in their functioning and fund management. Hence, it might affect the financial future of innocent people that have nothing to do with the capital market.

Hence, in the days to come, just like other laws are prepared and implemented only after serious discussions with related stakeholders, NRB should also start the practice to issue directives or making policies only after a comprehensive discussion with related stakeholders. Even SEBON, the regulatory board of the capital market, was left in the dark in this decision. The recent directive by NRB directly affects the free functioning of the stock market. It needs to be revised as early as possible to protect the wealth of general investors.

- Just a small investor in NEPSE.