Bankers say capital increment deadline too short

KATHMANDU, Sept 1:

Bankers have expressed their dissatisfaction with parliamentary Finance Committee over the central bank's new rule that requires bank and financial institutions (BFIs) to raise their minimum paid-up by as much as four times.

Speaking at a meeting of Finance Committee on Tuesday, bankers said that the deadline to meet the new paid-up capital is too short.


"We have some options to use to raise the paid-up capital. However, our main concern is whether the deadline set by the central bank is sufficient," Upendra Poudyal, president of Nepal Bankers' Association (NBA), told the parliamentary panel. "Merger is the best options for majority of banks. Some bigger banks can issue further rights shares or bonus shares to meet the new capital requirement. These processes, however, are a bit time consuming."

NRB has already told BFIs to furnish their paid-up capital increment plan, with a clear timetable, by mid-September. Unveiling the Monetary Policy for Fiscal Year 2015/16, NRB had raised the minimum paid-up capital requirement for BFIs by four times. They have been given two years to increase their capital base.


The new provision requires commercial banks to increase their paid-up capital by four times to Rs 8 billion within two years. Likewise, development banks and finance companies also have to increase their paid-up capital by multiple times.

"The central bank has announced that it will bar BFIs that fail to meet new capital requirement from mobilizing deposits and extending loans, among other actions. It should reconsider the decision as some BFIs may not be able to complete the process to raise capital within the given timeframe," he added.

NRB has already made it clear that it will take action against BFIs that fail to abide by the the minimum capital requirement within the stipulated deadline. NRB can ban such banks from distributing bonus and dividends, mobilizing deposit and credit, and opening branch offices.

Kishore Maharjan, CEO of Civil Bank Ltd, agreed with Poudyal and said: "Generally, it takes one to two years for a bank to complete merger process. The process entails the assimilation of the staff as well as the system of the two merged partners. So, our feeling is that the two-year time provided by the NRB is very short."

Bankers have also sought support of the government in the process to raise their capital base.

"Role of various government bodies like Office of the Company Registrar, Securities Board of Nepal, and Ministry of Finance is important in the entire process. They should provided needful support as BFIs embark on their capital raising plan," Poudyal said. "The government should also provide tax incentives and waiver on other charges for BFIs during the merger and acquisition process."

NRB officials, however, defended the directive to increase minimum paid-up capital requirement, saying that such policy was needed for financial consolidation. "We have already enforced the directive. There are many options for BFIs to raise their minimum paid-up capital," Maha Prasad Adhikari, deputy governor of the NRB, said. "The central bank believes that merger and acquisition is one of the options for increasing paid-up capital. The deadline that we have set is sufficient to complete the process."

The meeting was inconclusive as members of the committee demanded that Minister of Finance and Governor of NRB attend the meeting. The committee is scheduled to take the decision on Thursday following deliberation with the finance minister.

Source: Republica