Count dividend as paid-up capital, NRB tells BFIs

KATHMANDU, Aug 20:

Nepal Rastra Bank (NRB) has said that it would allow the banks and financial institutions (BFIs) who have proposed the bonus shares as dividend in the fiscal year 2013/14 to count as their paid-up capital.

The provision will make it easy for those BFIs who have not maintained their required paid-up capital yet to adjust their proposed bonus shares of the fiscal year 2013/14 in their paid-up capital.

The NRB, the central bank, however said that it would allow the cash dividend distribution to only those BFIs which have maintained the prescribed paid-up capital.

According to the circular issued by the NRB on Wednesday, the cash or bonus share dividend distribution will be barred for those BFIs which have cross-holdings in other BFIs until they divest such holdings.

Amid increase in the ´held for trading´ investment by the BFIs in recent times, the central regulators also capped such investment to one percent of the core capital (tier one capital). Held-for-trading denotes to debt and equity investments that are purchased with the intent of selling them within a short period of time (usually less than one year).

The central regulatory bank has also provided the deadline of mid July 2015 for the BFIs to bring such investment below one percent of the core capital if any of the BFIs have more than the prescribed limit.

"Among the investments of the BFIs, the investment in the Trading Book activities is also increasing, which has increased the investment risk. Thus, the BFIs should make investment only by adopting necessary risk mitigation tools while making the investment," reads the circular of the NRB.

Since the BFIs are not allowed to make investment in the shares of other BFIs, they buy shares of other companies like hydropower and insurance. According to the stock analysts, one of the main reasons behind the staggering rise of the scrips of insurance and hydropower companies in the secondary market in recent months is the flow of investment of BFIs in the market.

The new diktat of the central bank will curb such investment flows of the BFIs toward the securities market.

Similarly, the BFIs can now include their investment in the promoter share of the D class micro financial institutions as the deprived sector lending, according to the circular.

Source: Republica