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Restructuring Status: Submitted to SECPORestructuring Type: Level one Last modified on date : 02/22/2011

1. Basic Information Project ID & Name P071291: NP Financial Sector Technical Assistance Country Nepal Task Team Leader Sabin Raj Shrestha Sector Manager/Director Ivan Rossignol Country Director Susan G. Goldmark Original Board Approval Date 12/19/2002 Original Closing Date: 06/30/2007 Current Closing Date 12/31/2011 Proposed Closing Date [if applicable] EA Category C-Not Required Revised EA Category C-Not Required-Not Required EA Completion Date Revised EA Completion Date

2. Revised Financing Plan (US$m)Source Original Revised BORR 4.10 3.18 DFID 10.00 7.95 IDA 16.00 12.25 Total 30.10 23.38

3. Borrower

Organization Department Location Ministry of Finance Nepal

4. Implementing Agency

Organization Department Location Nepal Rastra Bank Nepal

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5. Disbursement Estimates (US$m) Actual amount disbursed as of 03/23/2011 10.60

Fiscal Year Annual Cumulative 2011 0.21 10.81 2012 1.80 12.61 Total 12.61

6. Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N Does the restructured projects trigger any new safeguard policies? If yes, please select from the checklist below and update ISDS accordingly before submitting the package.

N

7a. Project Development Objectives/Outcomes Original/Current Project Development Objectives/Outcomes The overarching objective of the Reform Program in the Financial Sector is to support the renewed efforts of the Government of Nepal (GON) to improve the sector in order to bring macroeconomic stability and promote private-sector-led economic growth. Specifically, the Project focuses on : (a) helping to restructure and re-engineer the Central Bank (Nepal Rastra Bank - NRB), so that it can effectively perform its key central banking functions; (b) commencing commercial banking reform in the two large ailing commercial banks that dominate the sector (Rastriya Banijya Bank (RBB) and Nepal Bank Limited (NBL)) -- by introducing stronger bank management that protects the financial integrity of the two banks and would take on a conservator role to prepare the banks for the next steps of restructuring; and (c) supporting a better environment for financial sector reform in areas such as enhanced credit information, better financial news reporting, and better training for staff in financial institutions.

7b. Revised Project Development Objectives/Outcomes [if applicable] Assist the Borrowers in (i) developing capacity of Nepal Rastra Bank staff to effectively perform key central banking functions; (ii) implementing restructuring program of Rastriya Banijya Bank and carrying out diagnostic review of Nepal Bank Limited, to prepare these state-owned commercial banks for the next steps of restructuring; and (iii) creating an enabling environment for financial sector development, specifically in the area of credit information bureau, secured transaction registry and financial news reporting.

Document of The World Bank

RESTRUCTURING PAPER

ON A

PROPOSED PROJECT RESTRUCTURING OF THE

FINANCIAL SECTOR TECHNICAL ASSISTANCE PROJECT LOAN

BOARD APPROVAL DATE: DECEMBER 19, 2002

TO

NEPAL

{DATE OF FIRST RESTRUCTURING: MAY 8, 2008}

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ABBREVIATIONS AND ACRONYMS

CIAA Centre for Investigation of Abuse of Authority CICL CST DFID IDA IFC MoF NBL

Credit Information Centre Limited Coordination and Support Team Department for International Development, United Kingdom International Development Association International Finance Corporation Ministry of Finance Nepal Bank Limited

NRB Nepal Rastra Bank RBB Rastriya Banijya Bank STRO WB

Secured Transaction (movable collateral) Registry Office The World Bank

Regional Vice President: Isabel M. Guerrero Country Director: Susan G. Goldmark

Sector Manager / Director: Ivan Rossignol Task Team Leader: Sabin Raj Shrestha

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NEPAL

FINANCIAL SECTOR TECHNICAL ASSISTANCE PROJECT P071291

CONTENTS

Page A.  SUMMARY ........................................................................................................................... 4 B.  PROJECT STATUS .............................................................................................................. 4 C.  PROPOSED CHANGES ...................................................................................................... 5 D.  APPRAISAL SUMMARY .................................................................................................... 9 ANNEX 1: RESULTS FRAMEWORK AND MONITORING .............................................. 11 ANNEX 2: PROPOSED ALLOCATION TABLE ................................................................... 16 ANNEX 3: REVISED PROCURMENT PLAN ....................................................................... 17 

 

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FINANCIAL SECTOR TECHNICAL ASSISTANCE PROJECT

RESTRUCTURING PAPER

A. SUMMARY The Financial Sector Technical Assistance Project has been adversely im pacted by successive changes in governm ent and the post-conflict tran sition, which has resulted in an extremely difficult political environment for reforms in the banking sector. In light of this, the Restructuring Paper seeks approval from the Board of Executive Directo rs for cancellation of som e of the project activities and seeks approval for changes in the Project Developm ent Objective, Re sults Fr amework and Monitoring, Project Costs, Financing Plan and P rocurement Plan. Th e activities that are being proposed for continuation are progressing we ll and are expected to ach ieve project objectives within the existing project period. B. PROJECT STATUS This project is co-financed with DFID and IFC. After seven years of implementation, the project (IDA) was 86.5 % disbursed and 1.4 % comm itted as at Octob er 31, 2010. The Implementation Progress and Development Objectives of the project were downgraded in July 2010 to Moderately Unsatis factory. This unsatisfactory performance has resulted in DFID deciding to close their assistance early. With regard to individual project components, the status is as follows: (i) Restructuring the two big state-controlled banks: The targeted ou tcomes for the restructuring of Nepal Bank Lim ited (NBL) and Rastriya Ba nijya Bank (RBB), both state con trolled bank s, have been largel y achieved. Both banks, which were incur ring operating losses, have been tu rned around with posit ive cash flows over the last seven years. Non-perform ing loans have been brought down from 58% for NBL and 60% for RBB in mid-July 2003 to 4.8 % and 11.9 %, resp ectively as of m id-October 2010. Staff levels have been reduced by m ore than 40% in both NBL a nd RBB. Br anches covering more than 80 % of the depos it base are n ow com puterized. Quarterly financial statements are now published in less than a m onth from quarter ends. T hese banks are considered technically ready for the next steps of restructuring. However, the B ank Restructuring Advisor (for privatization) was not recruited du e to lack of clear buy-in on the privatization strategy. (ii) Re-engineering Nepal Rastra Bank: For th e Nepal Rastr a Bank (NRB), the re-engineering component has not been fully achieved. The bank’s supervision capacity has improved but agreed outcom es we re not full y achiev ed d ue to th e f ailure of NRB to recruit international supervision experts. The financial disclosure standard has im proved in terms of quality and timeliness. The lega l and regulatory framework has significantly improved although am endments to Banks and Financial Institutions Act remain pending in the Parliament.

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(iii) Capacity Building in the Financial Sector: The developm ent objective of supporting an environment for financial sector reform has been partly achieved. With the re-establishment of the Credit I nformation Bureau as a priva te institution, it is functioning m ore efficiently with quick turn-around in ava ilability of credit reports. Public awareness of the reform program has increased sign ificantly an d the quality of financial news 1 reporting im proved. The training for NRB staf f in rep uted institutions has been successfully implem ented and the training program is proposed to continue through March 31, 2011. In light of the above, the following changes are being proposed. C. PROPOSED CHANGES

Project’s Development Objectives The original PDO: The objectives of the Project are to assist the Borrower in: (i) restructuring and re-engineering the Nepal Rastra Bank for it to effectively perform key central banking functions; (ii) implementing reforms in the commercial banking sector that will focus initially on restructuring Rastriya Banijya Bank and Nepal Bank Limited; and (iii) improving the environment for financial sector reforms in areas such as credit information and financial news reporting through specialized training and capacity building. The PDO that was recorded in the Rest ructuring Paper sub mitted in M ay 2008 was inadvertently extrac ted f rom the original Project Approval Docum ent (PAD) whic h was set at a program level and not at the pr oject level. The PDO in the Restructuring Paper of May 2008 reads as: The objective continues to be to support the government’s efforts to achieve a sound and efficient financial sector in support of macroeconomic stability and a private sector-led economy. The proposed new PDO is to assist the Borrower in : (i) developing capacity of Nepal Rastra Bank staff to effectively perform key central banking functions; (ii) implementing restructuring program of Rastriya Banijya Bank and carrying out diagnostic review of Nepal Bank Limited, to prepare these state-owned commercial banks for the next steps of restructuring; and (iii) creating an enabling environment for financial sector development, specifically in the area of credit information bureau, secured transaction registry and financial news reporting.

1 Improvement in the quality of financial news reporting is evidenced through greater factual content, accuracy and substance in articles that appear in the press today. At the start of the project period, financial news reports usually lacked depth and focus. Greater emphasis was placed on financial scandals and controversy. Investigative journalism, as in the case of Unity Life reported in May 2010, has also led to regulatory action.

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Project Scope Given the changing authorizing environment for banking reforms in Nepal, and recent track record in im plementation, it is proposed to reduce the scope of the project. The Restructured Project aim s to f ocus on the f ollowing activ ities: (a) ass ist the Centra l Bank (Nepal Rastra Bank – NRB) build cap acity throug h tra ining; (b) con tinue reforms in one state controlled com mercial bank – Rastriya Banijya Bank – through on-going assistance and supporti ng a diagnostic assessm ent of the other state controlled comm ercial bank – Nepal Bank L imited; and (c) create an enab ling environment for financial sector devel opment through im proved Credit Inform ation Centre Ltd, establishm ent of a Secured Tr ansaction Registry, and i mproved financial news reporting. Components are being down-sized, based on what can be realistically achieved within the remaining project period. In particul ar, the following activi ties under IDA/DFI D funding are being dropped: Component 1: Re-engineering of Nepal Rastra Bank i. Supervision Expert – Recruitm ent of international expe rts to streng then

NRB’s supervision departm ents have sta lled; the Fund has ag reed to provide two Resident Advisors for one year to strengthen the Bank Supervision and FI Supervision Departments. Further as sistance could be pr ovided under FIRST initiative, if requested by NRB.

ii. Human Resource Expert – Following the completion of contract of HR Expert

who prepared new policy/m anuals, NRB has not hired another expert for implementation. They plan to utilize in -house expertise to strengthen the HR function at NRB.

iii. Procurement Expert – As no new procur ement activity is being planned under

this project, NRB does not see the need for hiring an expert. iv. Public Relations Officer – NRB has indi cated the use of its own resources for

this position. Component 2: Management Contracts for restructuring NBL & RBB i. CEO of Ne pal Bank Lim ited –NBL is currently being m anaged by a three-

member coordination team from NRB. NRB has decided not to recruit a new CEO using FSTA funding.

ii. Bank Restructuring (Sales) Advisor – As the G overnment is still undecided

about the ultim ate disposition of govern ment shares in NBL and RBB, NRB decided not to hire the Bank Restructuring Advisor.

Component 3 : Other Financial Sector Assistance

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i. Debt Recovery Tribunal: As there has been no new request for continuation of support for procuring goods and training, this activity is being dropped.

The following activity is being added to component 2:

i. Diagnostic Assessment of NBL: NRB has decided to conduct a fast track detailed diagnostic assessment of NBL that would assist the GON to make decisions regarding the next restru cturing steps for this bank. The due diligence is proposed to be carried out by a joint venture of a Nepalese and an international firm.

Results/Indicators In light of the above changes, the resu lts framework is being revised with both indicators and targets linked to the rest of the project scope. Please refer to Annex 1 for details. Financing Plan and Cancellations The total financing req uirements for the rem aining activ ities are US$ 2.625 m illion which will be funded from the following sources:

IDA: US$ 2.040 million DFID: US$ 0.585 million

Cost estimates of the rem aining activities (component-wise) under the project are as follows: Component/Activity

Category Allocations (USD’000)

Source of Funding

Existing Proposed 1.NRB Re-engineering NRB Training Training 850 250 DFID 2.Management Contracts CEO of RBB Consulting 1,080 200 DFID Diagnostic Assessment of NBL Consulting Nil 800 IDA 3.Other Financial Sector Assistance

Automation of Credit Information Center Ltd.

Goods 872 850 IDA Training 130 50 DFID

Automation of Secure d Transaction Registry

Goods 252 250 IDA Training 50 50 DFID

Financial Journalism Training 200 35 DFID 4. Incremental Operating Cost Goods 91 40 IDA 5. Unallocated 1,414, 100 IDA Total 4,939 2,625

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Based on the above, category-wi se cost allocation for I DA funding would be revised as follows:

Expressed in SDR ‘000s Category Origina l

Allocation Existing Allocation

Disbursed Amount

Proposed Allocation

Goods 1,200 1,700 825 1,617Consulting Services 9,490 5,123 4,933 5,475Training/Workshops/Study Tours

770 - -

Incremental Operating Cost

16 50 19 30

Refunding of PP Advance 900 655 654 655Unallocated 24 872 - 8Sub-Total 12,400 8,400 6,431 7,785

Proposed Cancellation & Re-allocation to other country programs 615Total 8,400Cancellation as of May 31, 2008 4,000Original Amount 12,400

Similarly, category wise cost allocation under DFID funding would be as follows:

Expressed in GBP’000s Category Origina l

AllocationExisting Allocation

Disbursed Amount

Proposed Allocation

Goods 705 580 446 525Consulting Services 5,699 4,900 2,825 2,925Training/Workshops/Study Tours

446 1,375 1,194 1,440

Incremental Operating Cost

10 5 6 6

Refunding of PP Advance - - - -Unallocated - - - -Sub-Total 6,860 6,860 4,471 4,896

Proposed Cancellation 1,964Total 6,860

Based on the revised cost estim ates, this would result in a ca ncellation of GBP 1.964 million from the DFID Grant and SDR 615,000 under the IDA Credit.

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With the above changes the proposed category wise allocations are attached as per annex 2 of this report. It is proposed th at the cancelled SDR 615,000 be reallocated to other priorities within the Nepal program. Closing date There is no change in IDA closing date. However funding from DFID Trust Fund is being closed on March 31, 2011, a nd the rem aining activities have been sequenced such that project activities are completed within the project period. Implementation A revised implem entation plan has been discussed and a new procurem ent plan submitted. IDA has r eviewed th e plans and f inds them satisf actory. The revise d procurement plan is shown under Annex 3.

D. APPRAISAL SUMMARY The proposed changes w ill not change the En vironmental Category nor w ill it change the economic or social assessm ents. Th e financial assessm ent related to the accumulated losses in NBL and RBB indicate th at the Government’s fiscal burden for recapitalizing the two banks have been reduced by NPR 13.2 billio n (US$ 183 million) as both th e banks are making operating profits which have improved the ne t worth position in the two banks from a ne gative NPR 27.1 billion (US $ 375 million) as of July 2003 to a negative NPR 13.9 bil lion (US$ 193 million) as of October 17, 2010. Implementation arrangements remain unchanged as there is a renewed confidence that dropping of some of the com ponents will faci litate implementation and the remaining components are technically f easible to com plete with in the project period. T he financial management and procurement arrangement will remain the same. Risk Some of the critica l r isks identified during earlier appraisa l continue to rem ain valid and hence the need to d ownsize project components. The major risks as sociated with the remaining project components are:

1. Delay in projec t im plementation ar ising from com plex procurem ent procedures. Both the credit information system and movable collateral registry require procurement of modern m anagement infor mation system comprising sophisticated hardware and software. Preparation of RFP, bidding documents and evaluation require expertise in und erstanding o f the tech nical requirements of the system . This risk is being addresse d through an IFC support to the respective im plementing agencies during preparation of technical requirement and technical evaluation of bids.

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2. Implementing agency officials conti nue to be reluctant about making

procurement decisions for fear of being charged by the Comm ission for Investigation of A buse of Authority (or sim ilar anti-graft institution s) f or corruption. This risk should be m inimized by following Bank procurem ent guidelines strictly and keeping the pro cess highly transparent. Recruitment of a consultin g f irm f or carry ing ou t due d iligence of NBL is high in the government priority and the Bank would provide expertise in expediting the procurement process.

ANNEX 1: Results Framework and Monitoring

NEPAL: FINANCIAL SECTOR TECHNICAL ASSISTANCE PROJECT

Project Development Objective (PDO): (Original) Assist the Borrower in (i) restructuring and re-engineering the Nepal Rastra Bank for it to effectively perform key central banking functions; (ii) implementing reforms in the commercial banking sector that will focus initially on restructuring Rastriya Banijya Bank and Nepal Bank Limited; and (iii) improving the environment for financial sector reforms in areas such as credit information and financial news reporting through specialized training and capacity building.

Revised Project Development Objective: Assist the Borrowers in (i) developing capacity of Nepal Rastra Bank staff to effectively perform key central banking functions; (ii) implementing restructuring program of Rastriya Banijya Bank and carrying out diagnostic review of Nepal Bank Limited, to prepare these state-owned commercial banks for the next steps of restructuring; and (iii) creating an enabling environment for financial sector development, specifically in the area of credit information bureau, secured transaction registry and financial news reporting.

PDO Level Results Indicators* C

ore

D=Dropped C=Continue N= New

R=Revised

Unit of Measure

Baseline

Cumulative Target Values**

Frequency Data Source/ Methodology

Responsibility for Data

Collection

FY 2003 -09

FY 2010 End of Project

Indicator One: A record of timely implementation of central banking guidelines on reporting requirement, audit, on-site and off-site supervision, and corrective actions

R

NRB’s annual report not IAS compliant; bank supervision reports outdated and no evidence of prompt corrective action; No evidence of effective enforcement of NRB policies.

NRB’s statutory audit takes more than 6 months. IAS/IFRS and NRB Act non- compliant; Quarterly Off-site report takes > 3months; On-site supervisions done once in 2 years.

NRB’s statutory audit takes more than 6 months; Quarterly Off-site report completed within 3 months of QE and Enforcement Report generated within 45 days of QE; On-site supervision of banks done annually for each bank; Commercial banks meet timely reporting requirement and are IFRS compliant, NRB is not.

Statutory audit for all banks completed within 5 months and NRB audit within 6 months; Annual on-site inspection and quarterly off-site inspection conducted by NRB; Prompt Corrective Action guidelines implemented from FY2010/11.

Semi-annual

Nepal Rastra Bank/ Periodic Reports from relevant departments

Regulations Department, NRB

Indicator Two: Increased share of financial system owned and operated by private-sector players.

R

More than 50% of financial sector assets state owned/managed – namely NBL, RBB and ADBL and 5 Grameen Bikash Banks (GBB).

3 Grameen banks privatized and government shareholding reduced to 10 % in one; state controlled banks’ assets reduced to 27 % of the total

A successful IPO completed for ADBL with 44 % shareholding going to the public; state controlled banks’ assets reduced to 25 % of the total

More than 75 % of banking sector assets owned/managed by the private sector banks.

Semi-annual

Nepal Rastra Bank/ Periodic Reports from relevant departments

Regulations Department, NRB

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banking sector as of July 2009.

banking sector as of Sep 2010.

Indicator Three: Creditor’s rights enhanced through an upgraded credit bureau and establishment of a movable collateral registry.

R

Weak Credit Information Bureau; Turaround time takes more than a week; non existence of movable collateral registry.

Credit Information Bureau registered as CICL – a limited company and professional CEO hired, and operations stream lined; Turn-around time takes 2 to 3 days; Secured Transaction Registry Act promulgated;

CICL in process of evaluating bids to upgrade MIS; Turnaround time for credit information takes 2 days; Ministry of Finance decides to contract CICL for carrying out STR functions.

CICL automated with upgraded system; Turn-around time within 24 hours; A functioning STR established with automated system.

Semi-annual

Nepal Rstra Bank/ Periodic Reports from , CICL, STR,

Regulations Department, NRB

INTERMEDIATE RESULTS

Intermediate Result: Prepare NBL and RBB for next steps of restructuring.

Revised Intermediate Result: Conduct due diligence/audit of NBL to enable GON make decision on next steps of restructuring.

Intermediate Result indicator One: Improved profitability and loan portfolio of NBL and RBB

R

NBL and RBB incurred losses of Rs 3 bn and Rs 7 bn in FY 2001/02; NPA level of Rs 10.8 bn (56%) and Rs 14.9 bn (55%)respectively.

NBL and RBB register operating profit of Rs. 338 mn and Rs. 898 mn in FYE 2009; NPA at NBL and RBB improved to 5.9 % and 15.6 % respectively;

Provisional 4Q results for FY 2009/10: Net profit of Rs.357 mn for NBL and Rs. 2,010 mn for RBB; NPA ratio reduced to 4.9% for NBL and 9.8 % for RBB;

Profitability to be maintained above Rs 0.5 bn for NBL and Rs 1 bn for RBB; NPA level to be reduced by 70 % from FYE 2002 level;

Semi-annual

Nepal Rstra Bank/ Periodic Reports from relevant departments.

Regulations Department, NRB

Intermediate Result indicator Two: Hiring of Bank Restructuring Advisor to facilitate end-game resolution of NBL and RBB

D Bank Restructuring Advisor not hired for NBL and RBB

GON expressed its interest in privatizing NBL and RBB as part of its development policy in FY 2003.

BRA not hired in the absence of end game strategy.

Dropped Semi-annual

Nepal Rstra Bank/ Periodic Reports from relevant departments.

Regulations Department, NRB

Intermediate Result indicator Three: Hiring of a consulting firm to conduct diagnostic assessment of NBLto prepare for next steps of restructuring.

N Consulting firm not hired for conducting due diligence audit of NBL

Statutory audit of NBL’s financials carried out by local audit firms on an annual basis; International consulting/audit firm not involved.

Statutory audit of NBL for FYE July 2010 being carried out by a local auditor; International consulting/ audit firm not involved.

Diagnostic report submitted by December15, 2011 based on due diligence/audit of NBL with financials as of FYE July 2010

Semi-annual

Nepal Rastra Bank

Regulations Department, NRB

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and subsequent quarter ends.

Intermediate Result: Fast, reliable, secured and error-free information transaction to banks and financial institutions.

Revised Intermediate Result : Establishment of a privately owned credit bureau able to provide credit report on a real-time basis.

Intermediate Result indicator Four: A privately owned automated web based credit information system established.

R A Credit Information Bureau being manually operated by NRB

Credit Information Bureau is re-established as Credit Information Centre Limited – a limited company , 90 % owned by the private sector; Responds to around 200 requests per day; turnaround time for credit information takes between 3 – 5 days;

CICL responds to 450 requests per day and within 2 days Procurement of hardware, software for a web-based program in progress.

Ability to handle up to 1000 requests per day real time.

Semi-annual

Nepal Rstra Bank/ Periodic Reports from relevant departments.

Regulations Department, NRB

Intermediate Result: Establishment of a movable collateral registry

Revised Intermediate Result: No change

Intermediate Result indicator Five: A functioning movable collateral registry established.

C No movable collateral registry in place

Secured Transaction Act enacted in 2006; GON decided to place the movable collateral registry at CICL.

Agreement between GON and CICL signed in October 2010.

A fully functioning movable collateral (secured transaction) registry established .

Semi-annual

Nepal Rstra Bank/ Periodic Reports from relevant departments.

Regulations Department, NRB

Intermediate Result: Improved debt recovery process.

Revised Intermediate Result: Dropped

Intermediate Result indicator Six: Improved debt recovery process

D Debt Recovery Tribunal non-existent; recovery process long and cumbersome

Debt Recovery Tribunal (DRT) established on July 17, 2003 for 5 years; Cases take more than stipulated 150 days for closure;

Tenor of DRT extended by 3 years; cases are decided within stipulated period and decisions written within 10 days of final verdict; No pending verdicts to be written.

Dropped Semi-annual

Nepal Rstra Bank/ Periodic Reports from relevant departments.

Regulations Department, NRB

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Intermediate Result : Journalists trained in financial reporting

Revised Intermediate Result: No change

Intermediate Result indicator Seven: Financial journalist trained abroad.

R Economic/financial journalists do not have access to proper training.

Specialized training courses provided to 25 journalists in financial journalism in Lahore and London (by Reuters);

Ten financial journalists trained in the last one year. Eight more are being trained in FY 2010/11.

Total of 30 journalists trained.

Semi-annual

Nepal Rstra Bank/ Periodic Reports from relevant departments.

Regulations Department, NRB

Intermediate Result: Increased sophistication of the financial market and lower intermediation cost.

Revised Intermediate Result: Dropped (as this is covered by other indicators).

Intermediate Result indicator Eight: Increase in range and sophistication of financial instruments and services available at competitive prices.

D High cost of financing; limited financial products; weak credit bureau; weak financial journalism; lack of adequate training facilities.

Commercial bank branches reached 752 with population coverage of 36,760 per branch in July 2009; New products include ATM, branchless banking; Upgraded IT system for credit bureau being procured.

Commercial bank branches reached 966 with population coverage of 29,300 per branch in January 2010; New products include ATM, hand held POS, online banking, mobile banking; Upgraded IT system for credit bureau being procured.

Lower intermediation cost driven by competition; timely credit information from credit bureau on real time basis; establishment of bankers training facility.

Semi-annual

Nepal Rstra Bank/ Periodic Reports from relevant departments.

Regulations Department, NRB

Intermediate Result: Enactment of timely regulatory and prudential regulations.

Revised Intermediate Result: Dropped (as it is beyond the scope of the remaining project activities)

Intermediate Result indicator Nine: Finalization of a New Central Bank Act and Banking and Financial Institutions (BFI) Act and associated regulations.

D Separate regulations for commercial banks, development banks, agriculture

New Central Bank Act (2002) enacted; New BFI Act (covering all financial institutions as an umbrella act)

Further amendment to BFI Act to reflect changing environment awaiting approval of the

BFI to be amended as per recommendation of WB/IMF joint study.

Semi-annual

Nepal Rstra Bank/ Periodic Reports from relevant departments.

Regulations Department, NRB

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banks, state owned bank, finance companies and other financial intermediaries.

enacted and one revision also enacted.

parliamentary sub-committee; With absence of a functioning parliament, no progress noted.

Intermediate Result: Revocation of restriction on establishment of foreign accounting firms, banking ownership, and cessation of directed lending.

Revised Intermediate Result: Dropped (as it is beyond the scope of the remaining project activities)

Intermediate Result indicator Ten: Revocation of restriction of foreign accountancy companies to operate; Changed rules on majority banking ownership; Cessation of directed lending in priority sector.

D Foreign accounting firms cannot operate in Nepal; majority banking ownership restricted to 50%; 12 % of lending portfolio must be invested in the priority sector.

Foreign accounting firms are represented by local affiliates; foreign banks/ entities can own up to 75 % share of local banks; priority sector lending abolished; Deprived sector lending of 3% still mandatory.

Foreign banks allowed to open branches with several conditions.

Foreign banks allowed to open full-fledged branches without restrictive conditions; Further relaxation or abolishment of mandatory lending policy; Foreign accounting fimrs allowed to operate.

Semi-annual

Nepal Rstra Bank/ Periodic Reports from relevant departments.

Regulations Department, NRB

*Please indicate whether the indicator is a Core Sector Indicator (see further http://coreindicators) **Target values should be entered for the years data will be available, not necessarily annually

ANNEX 2:

Financial Sector TA Project (Cr. 3727-NEP and DFID Grant TF50593) Proposed Allocation Table

Category

Amount of the Credit Allocation

(Expressed in SDR)

Amount of the Pooled Funds Allocated

(Expressed in Pounds Sterling)

% of Expenditures to be Financed

1 Goods 1,617,000 525,000 100 %

2 Consulting Services 5,475,000 2,925,000 100 %

3 Training Workshops/Study Tours - 1,440,000 100 %

4 Incremental Operating Expenses 30,000 6,000 60 %

5 Refunding of Project Preparation Advance

655,000 -

Amount due pursuant to Section 2.02 (b) of

this Development Credit Agreement

6 Unallocated 8,000 -

Sub-total 7,785,000 4,896,000

Re-allocation/Cancellation 615,000 1,964,000

TOTAL 8,400,000 6,860,000

Cancellation as of May 31,2008 4,000,000

Original Amount SDR 12,400,000 GBP 6,860,000

ANNEX 3: Procurement Plan (PP) for Goods/ Works [15 July 2010 to 14 July 2011]

Project Name & ID: Financial Sector Technical Assistance Project(FSTAP) Loan/Credit/Grant No.: Cr.3727-NEP & DFID TF050593

Executing Agency: Ministry of Finance, Government of Nepal Implementing Agency: Nepal Rastra Bank, Baluwatar, Kathmandu

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 1 Procurement of Goods

for NRB, Coordination and Support team (CST)

Prior P 0.50 Shopping

WB Jan 15, 2011

Feb 15, 2011

Feb 30, 2011

Mar 07, 2011

Mar 25, 11

Apr 10, 2011

Apr 20, 2011

May 15, 2011

Center

R A

1.1 Slice-1: Photocopy Machine-1 nos, FSTAP/G/S-1.1

P 0.25 R A

1.2 Slice-2: Desktop Computer-2 nos, Laptop Computer- 1 nos. UPS- 4 nos. FSTAP/G/S-1.2

P 0.20

R A

1.3 Slice-3: Laser Printer-1 nos. FSTAP/GS/S-1.3

P 0.05 R A

2 Procurement of office furniture FSTAP/GS/S-2

Prior P 1.50 Shopping

WB Jan 25, 2011

Feb 25, 2011

Mar 30, 2011

Apr 07, 2011

Apr 25, 2011

May 10, 2011

May 20, 2011

June 25, 2011

Center

R A

3 Procurement of goods for the Automation of Credit Information Center Limited(CIBL) FSTAP/GS/ICB-3

Prior P 64.00 ICB WB Jan15 2011

Jan 22, 2011

Jan 30, 2011

Mar 10, 2011

Mar 30, 2011

Apr 03, 2011

Apr 15, 2011

Oct 31, 2011

Center

R A

4 Procurement of goods for Secured Transaction registry

Prior P 18.75 ICB WB Jan 7 2011

Jan 10, 2011

Jan 15, 2011

Mar 1, 2011

Apr 15, 2011

Apr 25, 2011

May 1, 2011

Jun 30, 2011

Center

5 Procurement of Procurement Consultant (NRB/FSTAP/CST)

Prior P 0.80 NCB WB Jan 05, 2011

Jan 10, 2011

Jan 12, 2011

Jan 20, 2011

Jan 25, 2011

Jan 31, 2011

Feb 03, 2011

Aug 15, 2011

Center

6

Procurement of Diagnostic Consultant for Nepal Bank Limited(NBL)***

Prior P QCBS

WB Feb 26, 2011

Mar 05, 2011

Mar 10, 2011

Mar 28, 2011

May 06, 2011

Jun 10, 2011

Jun 15, 2011

Oct 15, 2011

Center

Abbreviations: FA = Financing Agreement, PAD = Project Appraisal Document, P = Planned, R = Revised, A = Actual, BER = Bid Evaluation Report, NOL = No Objection Letter, NA = Not Applicable, BEC = Bid Evaluation Committee. *Bid Documents/RFP: in case of ICB, QCBS and NCB Method of Procurement ***Detail Procurement plan is attached herewith.