Impact of Parliamentary intervention in the paid up capital increment plan of NRB

ShareSansar, September 09, 2015

The Nepal Rastra Bank (NRB) has unveiled the monetary policy for fiscal year 2072-73. Through the monetary policy the NRB has directed the Banijya Bank to increase its capital to Rs 8 billion and national-level development banks to Rs 2.5 billion by the end of Asadh of 2074 BS. Likewise, the development banks working in four to ten districts should increase its capital to Rs 1.2 billion and the development banks working in one to three districts should increase its capital to Rs 500 million by the same period. Furthermore, Bank and Financial Institutions (BFIs) that fail to increase the paid up capital as stated above by the deadline will be barred from collecting deposits and issuing loans.

Issuing another directive, the NRB has asked BFIs to submit their plan, by the end of Bhadra 2072, to increase the paid up capital. BFIs can go for merger, acquisitions, issuing right & bonus shares to meet up the increased paid up capital set forth by NRB.

The bankers have shown reluctance to implement the monetary policy put forward by the NRB although they have welcomed the move. As a result the cat and mouse game has started between the bankers and the regulating body, the NRB. Some bankers have taken the issue to the Finance Committee of parliament. The members of parliamentarian committee who have their own vested interest in the BFIs have fiercely opposed the high handiness of NRB to increase the paid up capital. Mr. Ichhya Raj Tamang, member of parliamentary financial committee as well as chairman of executive board of Civil Bank Ltd, demanded to scrap the directive of the NRB to increase paid up capital of BFIs!

At the parliamentarian hearing the officials from NRB were aggressively defending the monetary policy 2072-73 as the lawmakers were busy hurling questions from all possible directions. The finance minister, Dr. Ram Sharan Mahat, was highly supportive of the Monetary Policy. Dr. Mahat even reminded lawmakers that it is the international standard for executive and legislative body not to intervene in the policy and actions taken by the central bank of the country.

As the issue has spread like a wildfire in the parliament, majority of the parliament members have been supportive of the monetary policy 2072/73 put forward by NRB.

A source privy with the matter told sharesansar organizations like World Bank, Asian Development Bank and International Monetary Fund have welcomed the plan to increase paid up capital of BFIs in Nepal.

What does all this fuss means for the Economy of the Nepal?

As soon as the monetary policy 2072-73 was put forward by the NRB, the only Secondary Capital Market in Nepal, Nepal Stock Exchange Limited (NEPSE), saw a steep increase in its index that had been stagnant for a while after the massive earthquake that struck various parts of Nepal on April 25, 2015. Nepse Index has broken all kinds of its previous record. This indicates that investors have overwhelmingly supported the NRB directive to increase paid up capital in BFIs. The investors, people from all walks of life, national and international organizations working in Nepal are highly supportive of the monetary policy 2072-73.

At current situation mega projects in Nepal have cumbersome process to find a financier as single BFI does not have capacity to loan such high amount. Thus, group of BFIs must agree to finance mega project. After increasing the paid up capital as stated in the monetary policy for this fiscal year, pundits have predicted a hassle free process to find a financer for mega projects in Nepal. Besides, after the increment of paid up capital it is projected that the BFIs will be able to serve larger population including those who are marginalized at the moment. Thus, the parliamentarian intervention by finance committee will only be noted as a minor hiccup by the historian in the advancement financial sector in Nepal.

During and after the successful implementation of paid up capital increment plan of NRB the overall economy and the sensitive capital market of Nepal is predicted to have a steady growth and stability.