‘BFI acquisition policy by March third week’

ShareSansar, March 13:

Nepal Rastra Bank is planning to come up with the acquisition policy by the third week of March, according to highly placed sources in the central bank.

The much-awaited acquisition policy will allow a banking and financial institution from acquiring another one.

“Even a development bank, which is financially and technically sound, can acquire commercial bank once the policy comes into effect,” a source informed.

The policy will be introduced by the central bank’s Board of Directors, which is due to meet shortly.

The central bank had mentioned the acquisition policy in its monetary policy for the current fiscal year, and the mid-term review of the monetary policy had reiterated that the acquisition policy will be enforced shortly to promote merger or acquisition of the BFIs.

To promote acquisition, the upcoming policy will also provide a tax waiver for a year to any BFI that acquire another one.

More than a dozen BFIs are eagerly awaiting the acquisition policy as they prefer acquiring other BFIs than opting for a merger, according to the central bank sources. For instance, Prabhu Development Bank Limited wants to acquire Kist Bank Limited.

The central bank, which had introduced the merger policy three years back in a bid to slash the number of mushrooming BFIs in the country, is working on a new policy that will help expedite the process to further reduce the number.

The upcoming policy envisages a BFI to acquire another BFI by paying the due amount to the promoter shareholders after calculating the assets.

The source further informed the policy is being introduced also because the bigger BFIs with huge net worth and capital base are found more interested in acquisition of other BFIs rather than seeking a merger.

The bigger BFIs, especially the commercial banks, prefer acquisition over merger because they do not have to take the burden of the shareholders as well as staff from the other BFI they have bought—unlike in the merger.

To facilitate the acquisition the central bank is planning to allow the BFIs to use their reserve and even issue debt bonds if they want to acquire other BFIs, the source added.

The central bank will ask for a Due Diligence Audit (DDA) to calculate the entire assets and liabilities of the BFIs being bought up so that the purchase rate can be determined on the basis of the net worth.

“But the concerned parties can always agree to pay more than the net worth if they agree,” the source added.

Though the proposed policy is more of less framed, there is, however, one issue that is yet to be addressed is the issue of the staff of the BFI to be purchased.

The Labor Act strongly backs employees.

“We are holding discussion with the stakeholders on this matter,” the highly placed source said. “As a way out, we are proposing readjusting the post of the staff of the acquired company, or a provision for a golden handshake.”

In the ongoing merger process, the salary and other stakes of the staff of the merged company are not affected.