Nepal Rastra Bank (NRB) has said that banks and financial institutions should stay away from donating funds to political parties as the cost of making such contributions would ultimately be passed on to depositors, reducing their chances of fetching higher yields on money that they park in banking institutions.

The banking sector regulator´s comments have come a day after Rajan Singh Bhandari, president of the Nepal Bankers´ Association, an umbrella body of commercial banks, told Republica in an interview that the central bank should be clear on whether banks could donate funds to political parties.

Bhandari, also the CEO of Citizens Bank International, was expressing his views on donation drive launched by a few political parties several weeks ago during which millions of rupees were demanded from commercial banks in the pretext of holding general conventions.

“Maintaining the relationship with political parties, supporting their activities and donating funds to them by coming under their influence are acts that do not fall under the jurisdiction of banking,” Bhaskar Mani Gyawali, spokesperson of Nepal Rastra Bank, told Republica. “However, banks and financial institutions are free to engage in social welfare activities and fulfill their corporate responsibilities.”

Since banking institutions do not want to infuriate shareholders, which could trigger mass selling of shares and cause their stock prices to drop, those that donate funds to political parties will make every attempt to retain the profit level by extending lower returns to depositors, Gyawali said.

“This will eventually hurt the interest of depositors, who actually are source of funds for banking institutions and the real owners of banks and financial institutions,” Gyawali further said. “Since Nepal Rastra Bank´s primary duty is to protect the interest of depositors, we can never allow such things to happen. Instead, we encourage banks and financial institutions to think of ways to maximize returns for depositors.