Directive to Cooperative Societies Holding a Limited Banking Transaction License

Nepal

(enacted in 2002)

Issued by the Nepal Rastra Bank, the Directive to Cooperative Societies Holding a Limited Banking Transaction License of 2002 contains prudential provisions for carrying out financial transactions in an integral and secure manner.  This is an unofficial translated version of this law.  However, note that it appears that the Nepal Rastra Bank has currently stopped issuing licenses to cooperatives under this act.

This directive consists of the following sections:

  • Chapter 1 Preliminary: addresses the application of the directive and defines common terms;
  • Chapter 2 Provision of Share Capital: describes the requirements of share capital to carry out financial transactions;
  • Chapter 3 Provision of Capital Fund: directs cooperative societies to make adequate provision for Capital Fund based on the risk weighted assets;
  • Chapter 4 Provision of Financial Resource Collection: explains the norms for financial resource collection from member depositors of cooperative societies;
  • Chapter 5 Provision of Compulsory Balance and Liquid Assets: provides guidelines for minimum cash reserve and liquid assets that a cooperative society has to maintain against its overall liabilities and the implications for failing to do so;
  • Chapter 6 Provision of Institutional Good Governance: discusses issues related to institutional governance and management of the cooperative society;
  • Chapter 7 Provision of Credit Limit: provides credit limit to a borrowing member;
  • Chapter 8 Provision of Interest Rate: addresses the role of the board of the cooperative society and the Nepal Rastra Bank in determining the interest rate;
  • Chapter 9 Provision of Loan Loss and Loan Classification: classifies loans into good, sub-standard, doubtful, and bad;
  • Chapter 10 Provision of Investment: addresses investment in shares, debentures, bonds, and other related matters; and
  • Chapter 11 Miscellaneous: addresses other the terms that have to be followed by the cooperative society and other issues.