Method of Supervision and Inspection in Nepal Rastra Bank

Find here the method of supervision and inspection in Nepal Rastra Bank. Many countries implemented economic liberalization and open market policy after the 1980s. As a result, banks and financial institutions are increased rapidly in most countries including Nepal. Like a supervisory system, the monitoring system can be carried out with fewer than three methods. They are:

1. Off-site monitoring
2. On-site monitoring

Method of Supervision and Inspection in Nepal Rastra Bank

Central bank Nepal Rastra Bank uses two methods of supervision for banks and financial institutions:

1.    On-site supervision and inspection: In this method, Nepal Rastra Bank appoints any official of the bank for such purpose or designates any other person to carry out such activities by investing branches and head office of the particular institution. There is a provision that head offices of the banks needed an inspection from the central bank at least once a year and branch offices needed an inspection once in three years. NRB act 2051 has a provision that any bank and financial institution has a duty the submit information demanded by the official and by the central bank. Therefore, NRB Act 2058 has provided that any bank or financial institution must submit or provide information demanded by the official or by the central bank. NRB has been carrying out inspections and supervision by preparing a schedule. Accordingly, the head offices of the banks are inspected at least once in a year and other branch offices are inspected at least once in three years.
2.     Off-site supervision and inspection: In this method, Nepal Rastra Bank asked the particular bank to submit necessary documents and information o. any other documentation to the central bank. This method is less costly if an inspector does not visit the site of the particular bank. Nepal Rastra Bank follows the CAMELS rule for the monitoring of the commercial banks and financial institutions, which includes the easements of the policies, directives, and regulations of the central bank to find if they are sufficient to meet the national economic objectives. NRB attempts to prevent the difficulties or problems that may arise in course of implementation of the monetary policy. Similarly, NRB also evaluates the current situation of the monetary market for economic development.

This method consists of supervising the activities of the bank by asking for necessary documents, information, or any other documentation to be submitted to the central bank by the concerned authority of the financial institution or bank.

This method is comparatively less expensive because the inspector needn’t visit the site of banks and institutions. Nepal Rastra Bank has been carrying out the supervision activities provided by the Nepal Rastra Bank act 2058 by the international practice of ‘CAMEL’. Where,

C = Capital adequacy
A = Asset quality
M = Management quality
E = Earning and portability
L = Liquidity

Monitoring of the commercial banks and financial institutions includes the assessment of the policies, directives, and regulations of the central bank to find if they are sufficient to meet the national economic objective.

Nepal Rastra Bank attempts to prevent the difficulties or problems that may arise in the course of the implementation of the monetary policy. Similarly, NRB also evaluates the current situation of the monetary market to fulfill the national objectives of economic development. The monitoring is mainly concerned with the central bank itself not directly related to the banks and financial institutions.