The Nepal Rastra Bank (NRB), the central bank, is floating development bonds worth Rs6 billion on Tuesday as a part of the government’s plan to raise domestic debt worth Rs111 billion in the current fiscal year.

These bonds will mature after five years of issuance.

Of the bonds that the NRB is floating, 80 percent is in the form of competitive tender and the rest in the form of non-competitive tender.

This means bonds worth Rs4.8 billion are up for grabs through competitive bidding process and the remaining Rs1.2 billion worth of bonds through non-competitive bidding. The cut-off rate fixed for bonds floated through competitive bidding process will apply for bonds floated through non-competitive bidding, according to the NRB.

The competitive bidding is open to banking institutions, like commercial banks, development banks and finance companies, and non-banking institutions, like insurance companies, Employees Provident Fund, Citizen Investment Trust and merchant banks.

But the non-competitive bidding is only open to non-banking institutions.

This is the fourth time the NRB is floating development bonds in this fiscal year.

The NRB had first floated bonds worth Rs7 billion on March 2 this fiscal year. At that time, bonds floated in the form of competitive tender were oversubscribed by 4.5 times, while securities offered in the form of non-competitive tender had remained undersubscribed.

When the NRB floated second tranche of development bonds worth Rs5 billion, securities in the form of competitive tender were oversubscribed by 6.9 times, but bonds in the form of non-competitive tender had again remained undersubscribed.}

During the floatation of third tranche of development bonds worth Rs5 billion, securities in the form of competitive tender were oversubscribed by 5.3 times, but there was no taker for bonds floated in the form of non-competitive tender.

Bonds in the form of non-competitive tender that are not subscribed are issued to banking institutions.

Non-banking institutions, like insurance companies, Employees Provident Fund and Citizen Investment Trust, did not show interest in acquiring bonds floated in the form of non-competitive tender because banks and financial institutions are offering higher returns on deposit, according to Trilochan Pangeni, head of the Public Debt Management Department at the NRB.

This gap could have been filled by merchant banks operating in the country. “But merchant banks here look for short-term investments or better returns,” Pangeni said. 

The returns on bonds issued in the past ranged from 3.47 percent to 3.98 percent per annum. 

NRB bars haphazard fee collection

KATHMANDU: The Nepal Rastra Bank (NRB), the banking sector regulator, has said the difference between administrative service fee and commitment fee imposed by banks and financial institutions on loans should not be more than 0.25 percent.

The regulator has also said all the fees, except administrative service and commitment fees, should be incorporated in lending rates.

The NRB has also said banks and financial institutions are authorised to collect administrative service fee from borrowers soon after the loan approval process is initiated. But such fee must be reimbursed if the borrowers are denied the loan. (PR)