BFIs intensify process to meet new paid-up capital requirement

With the deadline to meet the new paid-up capital requirement drawing closer, bank and financial institutions (BFIs) have also intensified the process to raise their minimum paid-up capital. The new paid-up capital requirement has prompted BFIs to pursue merger and acquisition as well as float rights and bonus shares to meet the new capital requirement. As almost all the BFIs have increased their stock dividends to shareholders compared to what they used to offer in the previous years, many have also started the process to undergo merge or acquire other BFIs. While some are still looking for the right merging partners, 88 BFIs have already completed merger as of mid-March 2016, according to the Nepal Rastra Bank (NRB). This has resulted in formation of 33 BFIs. Likewise, two finance companies were acquired by a commercial bank and one development bank was acquired by another development bank. Unveiling the Monetary Policy for Fiscal Year 2015/16, NRB has announced plan to raise the minimum paid-up capital of commercial banks by four times to Rs 8 billion by mid-July. The central bank has also increased paid-up capital requirements for development banks and finance companies. According to the new provision, national-level development banks will be required to raise their paid-up capital to Rs 2.5 billion, while development banks that have working areas of 4-10 districts will have to raise paid-up capital to Rs 1.2 billion. Similarly, development banks having presence in one to three districts will have to increase their capital base to Rs 400 million. According to the central bank, BFIs are required to meet the new paid-up capital requirement by mid-July 2017. In the Monetary Policy 2016/17 that it planning to unveil next month, the central bank will be reviewing the progress made by BFIs to meet the paid-up capital. "So far, the BFIs seem to be on the right track. The upcoming monetary policy will review the progress and reiterate the central bank's move to strengthen the capital base of the banking industry," the NRB official said. The central bank is likely to reiterate its position about the paid-up capital requirement to press the BFIs to move ahead as per the capital plan they had submitted last year. Source: Republica