I. Introduction
Nepal Clearing House Ltd. (NCHL) is a public limited company
established on 23rd December 2008 (9th Mangsir 2065) under the
leadership and guidance of Nepal Rastra Bank (The Central Bank of
Nepal). It has the equity participation from Nepal Rastra Bank,
commercial banks, development banks, finance companies and Smart
Choice Technologies (SCT), a private card switch operator. NCHL
recognizes banking & financial technology oriented services as
one of the key ingredients for the Banks/FIs to improve their
efficiency, productivity and also provide innovative financial
solutions to their customers. And NCHL intends to help them realize
these by providing various technology based payment related
services without having to invest heavily into infrastructures by
the Banks/FIs.
NCHL has initially implemented and operated NCHL-ECC System in
Nepal offering banks and financial institutions with an electronic
medium of cheque clearing and will later establish a national
payments gateway to facilitate electronic payments & financial
transactions across banks and financial institutions within the
country. Electronic Cheque Clearing (NCHL-ECC) System provides
means to electronically transfer cheque images through a secure
medium thus completely replacing the traditional physical routine
of moving paper-cheques among the banks and clearing house, which
has resulted in significant reduction of tedious and time consuming
manual process of cheque clearing, both for the banks and for the
customers.
Individual banks and financial institutions are enrolled within
NCHL as participating members and are responsible for their
clearing operations through the NCHL-ECC System.Nepal Clearing
House Ltd. (NCHL) currently has 131 equity holders including Nepal
Rastra Bank, Commercial Banks, Development Banks, Finance Companies
and Smart Choice Technologies P Ltd.
II. Financial StructureNCHL was incorporated on 23rd December
2008 as a public company as per the Companies Act 2063, under the
leadership and guidance of Nepal Rastra Bank (the Central Bank of
Nepal) and Nepal Bankers Association. It has an Authorised Capital
of NPR 250,000,000 and Issued Capital of NPR 128,570,000 out of
which 70% from the promotor shareholders amounting to NPR
89,999,000 is full paid. 30% of the Issued Capital will be raised
later by issuing shares to general public. NCHL currently has 27
institutional promotor shareholders including Nepal Rastra Bank, 23
Commercial Banks, 2 Development Banks and Smart Choice Technology
P. Ltd. (an ATM switch provider).
During the year under review the company has made net profit of
NPR 24,081,561.39 as against net loss of NPR 8,431,189.06 in the
last fiscal year. Cumulative profit till the end of the fiscal year
stands at NPR 8,972,631.27.
III. Vision, Mission & Values
Vision: To be a leading provider of electronic payment and
settlement services.
Mission Establish and operate national systems for clearing,
paymentsand settlements; Facilitate the development of secure &
trusted new payment methods and technologies in Nepal; Protect and
increase shareholders values; Establish as an organization of
choice for the employees.Values: NCHL values the highest standards
of ethics, integrity and teamwork. NCHL is committed towards its
members, shareholders, partners and employees.
IV. ObjectivesModernizing the Banking sector in Nepal is an
essential strategic objective that Nepal Rastra Bank seeks to
realize by implementing an advanced cheque clearing solution that
manages the daily cheque clearing cycle electronically. The major
objective of NCHL is to cut-off the overhead cost, effort and time
that were spent to complete a cheque clearing cycle and to
eliminate physical cheques movement. It is intended also to
accelerate the production cycle and to contribute in the economic
growth on a nation-wide scale. But regarding to the other general
objective of NCHL, it concentrated on To provide the faster access
to funds for both individuals and corporations, reduce payments
overhead costs, minimize associated risks, and promote efficiency
in terms of speed and security of payments. Operating nationwide
electronic cheque clearing system (NCHL-ECC) and becoming a
financially stable company Aims in the growth and operational
excellence so as to transform NCHL into a valuable institution To
convince even smaller regional BFIs to join NCHL, as it will add
value to them by means of their cheque acceptability across the
country Focus in encouraging existing member BFIs to extend
NCHL-ECC service from all their branches.
V. FunctionClearing house can be defined as entity which is
different from the exchange, although it works closely with the
exchange so that day to day operations of the exchange can run
smoothly. Clearing house gives guarantee for all the transaction
and acts as counterparty for all the transactions it will never
have open position in the market. It ensures that all parties
adhere to the system and procedures so that various parties in the
market can do trading smoothly. It also ensures a proper risk
management system and finally it ensures that delivery of the
underlying assets is consistent in terms of quality, quantity, size
etc. Following are the function of Nepal Clearing Housea. Members
Registration: The Clearing House obtain a copy of the official NRB
approval before registering any new direct member, indirect member,
or any new special member. Moreover, the new members must satisfy
the eligibility criteria mentioned in Members Eligibility section
7.2 and all members have similar working procedures in order to
manage and control the cheque clearing cycle from their side.
b. Member Management: One of the major function of NCHL is
member management where it workout on activities like member
suspension (full authority to suspend a member from the system for
any reason it deems appropriate), Member Resumption,Member
Termination (authority to terminate any member from ECC for any
reason it deems appropriate), Member Withdrawal, Member
Notification (notify electronically all members of any members
suspension, termination, withdrawal or resumption) and
Identification (a unique identification member number (ID) provided
by NRB).
c. Member connectivity: The Clearing House operates in
Application Service Provider (ASP) model for providing its services
to the members. All application systems and database components of
all members are centrally installed in the Clearing House data
centres. The ECC central node application systems are fully
web-enabled. Members are required to access the centralized servers
using the web browser, for performing ECC functions and accessing
information of their own ECC databases.
All members shall set up and maintain a member platform which
comprises workstations, cheque scanners and printers for connecting
to the ASP model.
d. System Operation: NCHL major function is taken as system
operation i.e daily operation to clearing session and its final
clearing session settlement. It manages the daily operations by
configuring the daily clearing sessions timing, validating
automatically the presented/replied cheque, overseeing the overall
clearing cycle and guaranteeing a mature closure and submission of
the Net Clearing Position (NCP) of clearing sessions to NRB. NRB
has the full authority to approve or reject the extension and the
NCHL will notify all members with the session extension period. It
has the full authority to terminate a session for any reason it
deems appropriate. NCHL notify all members in case the session
termination action has been taken. In this situation, all pending
cheques in the terminated session will be rejected due to the
session terminated return reason.
e. Dispute Resolution: In the event of dispute or differences
arising between the members and the parties are unable to resolve
amicably, the matter is referred to Clearing House that is
responsible to set up an independent Arbitration Committee. Again
not only concerning with dispute resolution between the members it
also functions to resolve the dispute between Clearing House and
Members.
VI. Major activities of NCHLThe Clearing House main activities
can be summarized as the following: Receiving cheques from
presenting members for outward clearing, and assuring the presented
cheques validity. Transmitting cheques to respective Paying members
for inward clearing Receiving replied cheques and rejected cheques
from Paying members Transmitting replied cheques and returned
cheques to Presenting members. Ending the clearing session of the
current business day. Generating the Net Clearing Position (NCP)
and submitting the file to NRB for settlement through the direct
members accounts. Starting a new clearing session.
VII. Clearing Sessions ECC daily clearing sessions have the
following parameters: Clearing Date (T): The date on which the
cheque shall move from the Presenting Member to the Paying Member
to be cleared. In other words; it is the date on which the customer
account will be credited in the Presenting Member. 1. Currency:
Defines the cheques currency that can be presented and cleared
within the clearing session. Session Start: The time that the
Presenting members can start presenting cheques. 3. Session End:
The ending time of the clearing session within a business day (T).
First Cut-off Time (Presentment Cut-off time): The time when all
cheques within the clearing session must be submitted by the
Presenting members. Second Cut-off Time (Reply Cut-off Time): The
time when all cheques must be replied by the Paying members.
Urgency level: ECC shall support the following urgency levels:
Regular Clearing: For regular cheques clearing Express Clearing:
Critical timely-based cheque clearing which requires immediate
reply from the Paying Member.
a) Regular Clearing Sessions Any presented cheque under a
Regular clearing session must be replied before the end of the
Regular Clearing Session (before the reply cut-off time); otherwise
it will be auto- accepted. The session configuration for the
regular clearing session has the following settings for a
particular business day (T): Starts from the previous business day
(T-1) at 14:00. First Cut-off Time (End of Presentment) takes place
at 14:00 on the current business day (T). Cheques presented after
that time will be assigned automatically to the clearing session of
the next business day. Second Cut-off Time (End of Reply) takes
place at 15:00 on the current business day.
b) Express Clearing Sessions The Express Clearing session must
be started and completed before the end of the first cut-off time
of the regular clearing session. Any presented cheque under Express
Clearing must be replied within 30 minutes; otherwise it will be
auto- rejected by the system with a "time out" reason. The
determination of presenting a cheque with Express Clearing urgency
shall be governed by the following: Express Clearing should be used
for timely-based critical cheques. The determination of cheques for
Express Clearing is the responsibility of the Presenting member,
based on a request from their customers. 2. The ECC shall also
determine the cheque amount limits for express clearing based on
the thresholds defined by NRB. Express Clearing Sessions shall have
the following schedules (Sunday to Thursday) that specify the
starting time, presentment durations and cut-off times for each
Express Clearing Session:
1. First Session: Starts at 10:00 First Cut-off Time (End of
Presentment) is at 11:00 Second Cut-off Time (End of Reply) is at
11:30 2. Second Session: Starts at 11:00 First Cut-off Time (End of
Presentment) is at 12:00 Second Cut-off Time (End of Reply) is at
12:30
3. Third Session: Starts at 12:00 First Cut-off Time (End of
Presentment) is at 13:00 Second Cut-off Time (End of Reply) is at
13:30
c) Friday Session Special Regular Clearing Sessions shall have
the following schedules for Friday that specifies the starting
time, presentment durations and cut-off times for each Regular
Clearing Session: 1. Session: Starts at 10:00 First Cut-off Time
(End of Presentment) is at 11:00 Second Cut-off Time (End of Reply)
is at 11:30
d) Cheque Clearing Flow The Cheque Clearing Flow is based on
transferring the electronic cheques images within the defined daily
clearing sessions durations for presenting and receiving cheques.
The complete clearing cycle from the beginning till the end takes
place within the same business day (T+0). And any cheque presented
after the first cut-off time shall be cleared on the next business
day (T+1). The Cheque Clearing Flow can be summarized in the
following main point:
The Cheque Clearing Flow starts with the outward clearing at the
Presenting member. The Clearing House routes the presented cheques
from the Presenting member to the Paying member. The Inward
Clearing starts at the Paying member. The Reply is sent from the
Paying member to the Presenting member through ECC to accept
/reject the payment of the cheque. The Clearing Cycle ends when ECC
submits the NCP for the replied cheques to the NRB for settlement
amongst all Presenting and Paying members.
VIII. Risk Management
NCHL being a systemically critical financial market
infrastructure, it should identify scenarios that may potentially
prevent it from being able to provide its critical operations and
services as a going concern and assess the effectiveness of a range
of options for recovery. And it should regularly review the
material risks it bears from and poses to other entities as a
result of interdependencies and develop appropriate risk-management
tools to address such risks. NCHL has continued to update and
upgrade its risk management system in a continuous basis.
Business RiskThe main business risk faced by NCHL as the
national service provider for clearing & settlements is the
risk of not having sufficient banks and financial institutions
enrolled as its members and thus significant reduction in the
cheque transaction volume. And this is of a major concern given the
current trend of merger of many of the banks & financial
institutions.
Operation RiskThe operational risk management at NCHL is focused
at establishing itself as an efficient and effective electronic
cheque clearing service provider. In order to accomplish this,
risks need to be mitigated in the areas of processes, people and
technology. Appropriate policies and procedures required for the
operation have been formulated and implemented. Its IT Policies are
closely aligned with COBIT standards in order to mitigate the risks
associated with information security and to follow best
practices.
Systematic RiskRisks arising due to interdependencies and
possibility of transmitting disruptions beyond NCHL and one/few
participants are the systemic risks. This may be due to an
inability of one or more of the participants to perform as expected
which could cause other participants to be unable to meet their
obligations when due. NCHL works very closely with the settlement
bank (Nepal Rastra Bank) and with the participating members there
by reducing the overall impact of such risk.
Liquidity RiskThough NCHL is expected to be profitable in a long
run, there is a high probability of liquidity risk in a short run.
The liquidity risk includes the inability of the company to handle
the short and medium term financial liabilities. In order to manage
the liquidity risk, the Board and the management regularly monitor
and analyze the cash flow forecasts. Company financials are also
analyzed and monitored in a regular basis.
Interest Rate RiskConsiderable portion of the expenses was in
the form of finance cost against the loan obtained to bridge the
funding required for participating member banks software. As of
today, we have already paid all the outstanding loans but downward
interest rate in coming year may affect adversely in the interest
income in view of our anticipated cash inflows.
Foreign Exchange RiskA significant proportion of the software
and maintenance services are sourced from the international vendor
and the payment is made in US Dollars. In order to avoid the upside
risk due to the fluctuations of the Rupee against the Dollar, NCHL
managed to enter into US dollar forward contract with a local bank
and hence was able to manage the foreign exchange risk at
manageable levels.
IX. Strategic Plan:NCHL was established to implement and operate
various national payment & settlement systems and ultimately
establish a national payment gateway that can facilitate electronic
transactions in Nepal. In medium to long term, NCHL will be working
towards providing various products/ services in line with the Nepal
National Payment System Strategy as envisioned by NRB. NCHL has
already initiated to implement an interbank payment system
(NCHL-IPS) which after coming into operation will be yet another
milestone in the banking sector of Nepal after NCHL- ECC. NCHL-IPS
is a system for clearing low-value large volume financial
transactions that provides a mechanism for the participating banks
& financial institutions to safely and efficiently transfer
funds on behalf of their customers as well as for their own trading
purposes. It facilitates nationwide fund transfer between the
accounts held at different banks. Further Future strategic plan of
the Company for the coming year are listed as below: Extend
membership to regional BFIs with target of additional 15 members
along with the reduction of 15-18 members due to merger. Promote
and encourage member BFIs to introduce outward clearing from
majority of their branches. Introduce 2nd and 3rd Express Clearing
Sessions. Upgrade/ Enhance NCHL-ECC System and infrastructure to
handle higher cheque volume. Assist member BFIs for introducing
standard MICR cheques. Strengthen risk management and implement ISO
27001 based information security management system (ISMS). Organize
continuous training for the participating member Banks/FIs and for
the NCHL staff. Start implementation of interbank payment system
(NCHL-IPS) and Introduction of REAL TIME GROSS SETTELMENT SYSTEM
(RTGS).
X. PRODUCTS & SERVICES NCHL has been in the vanguard of
adopting technology based services for making the payment,
settlement and clearing systems in the country efficient, modern
and robust. Its first national payment & clearing system in the
area of electronic cheque clearing (NCHL-ECC), is already in
operation. After replacing manual cheque clearing at Janakpur
region with electronic cheque clearing from 26th Chaitra 2070 (9th
April 2014), NCHL has completed nationwide rollout of NCHL-ECC by
successfully replacing manual chequeclearing all across the
country.NCHL-ECC service is an image-based nationwide MICR cheque
processing & settlement solution where an original paper cheque
is converted into an image for electronic processing and is
transferred through a secured medium between participating member
BFIs. The physical movement of the cheques are truncated or stopped
at the level of the presenting bank resulting in a faster and
easier processing of the cheque transactions. The product and
service of NCHL are listed as below:
a. NPR Electronic Cheque ClearingThis is an electronic cheque
clearing service for NPR denominated cheques. Participating members
need to have settlement account in Nepali currency at Nepal Rastra
Bank to avail this service. It is available for both standard (MICR
based) and non-standard (non-MICR based) cheques.
b. FCY Electronic Cheque ClearingThis is an electronic cheque
clearing services for USD, GBP and EUR currency denominated
cheques. Participating members need to have settlement account in
the respective foreign currency at Nepal Rastra Bank to avail this
service. It is available for both standard (MICR based) and
non-standard (non-MICR based) cheques.
c. Express Cheque ClearingExpress NCHL-ECC service is a special
arrangement of short duration for cheque presentment, response and
settlement allowing the BFIs and their customers to present and
realize their cheques faster. Currently one express cheque clearing
session is available for all four currencies NPR, USD, GBP and EUR.
However, NCHL will soon extend this service by introducing 2nd and
3rd express sessions to facilitate member BFIs and their
customers.
d. National Cheque ArchiveNational Cheque Archive is an
additional service provided to the member Banks/FIs to have an
access to the historical cheques and transaction details. All the
cheque transactions older than three months are moved from the
NCHL-ECC System to National Cheque Archive system to store the
cheques for up to 7 years and will be made available to the member
BFIs on request.
XI. Organization Structure
System ManagerFinance & Admin OfficerOperations
ManagerTechnology& Infrastructure ManagerNetwork Engineer/
Helpdesk In-chargeChief Executive OfficerBoard of Directors
The above chart shows the organizational structure of NCHL. The
Board of Directors is at the top of the hierarchy with the CEO
reporting to them. The organization is restricted to a three tier
hierarchy with the Board of Directors at the top, CEO at in middle
and line manager as in the last tier. The overall executive
structure comprises of The CEO with direct reporting lines of
various functions.
XII. Economic contributionNCHL was established with an initial
objective of operating cheque clearing as the first national
payment system later to implement multiple payment and settlement
systems in Nepal. It has successfully rolled out NCHL-ECC system
across the nation and have now completely replaced manual cheque
clearing in Nepal. This system has become cost effective, time
saving with quality clearing processing. NCHL has made huge
contribution to the economy. Some of the economic contributions of
NCHL are described below. Fast cash flowSame day clearing and
settlement at Nepal Rastra Bank (NRB) with minimum settlement time
of (T+0) and maximum of (T+1) irrespective of the geographic
location of the bank/branch increases in operational efficiency.
NCHL e-clearing services provides fast cash flow in the banking and
financial institutions.
Risk aversion It may however be noted that the use of
non-standard cheque increases the processing time both at
presenting and paying banks manually. There is no need to
physically move the cheques from the branches to NRB for clearing,
NCHL reduces operational risk of cheque losses and cheque related
frauds by securing the transmission route.
Improve liquidity positionIn manual cheque clearing system there
was delaying in converting cheque to cash whereas in electronic
clearing system cheque could be converted into cash immediately
which helps to increase the liquidity position of bank and
financial institutions.
AccessibilityClearing service by NCHL can be extended to the
entire country with no geographical dependency. For example:-In the
Far-western region of Nepal, where there is limited access to
financial services, it takes days for a single cheque to clear.
People living in these areas have a hard time dealing with this
situation, as opposed to the people living in the first tier and
second tier cities, where banks are present at every turn. Through
the agreement between SAFAL project, Nepal Clearing House, Banks
and Financial Institutions it is expected that NCHL-ECC systems
will be accessible to locals in these deprived districts and will
be able to gain immediate access to their finances, opening doors
for them to participate in economic activities.
Company Shareholders
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