Merger process needs major overhauling: Study
KATHMANDU, MAY 15 -
With the Nepal Rastra Bank (NRB) encouraging the merger five rural development banks, a recent study carried out by the Central Bank has suggested major overhaul in the merger process to make the single micro-finance bank feasible.
The study report has suggested increase in the paid up capital of the merged entity to Rs 1 billion from the current combined paid-up capital of Rs 358 million. For this, the report has suggested that the government and the commercial banks could contribute to increase the paid up capital.
“As commercial banks are required to provide loans under deprived sector lending mechanism, they can do so by investing in rural development bank to become shareholders,” said Dharma Raj Pandey, president of Nepal Micro-Finance Bank Association, who coordinated of the study team.
The report submitted to the central bank a few months ago has also suggested the government to extend help by providing cash as grant, loan or share investment to increase the paid up capital and fund for voluntary retirement scheme (VRS).
It has suggested cutting down the current over 900 employees of entire rural development banks by as much as 50 percent after the merger. “We have also suggested that some technical employees with knowledge in computer, micro-finance business and chartered accountants should be appointed after giving retirement to inefficient and unnecessary staff,” said Pandey. The report has also blamed political intervention, inefficient management and expansion of branches in hilly areas with higher running cost for poor performance of rural development banks, with the exception of Paschimanchal to some extent.
As of mid-January 2011, the capital adequacy ratio of Purbanchal, Madhayamanchal and Madyapaschimachl Grameen Bikas Bank was below 11 percent although they should not implement the Basel II guidelines. Sudur Pashchimanchal Grameen Bikas Bank had negative capital adequacy ratio, while Paschimanchal had positive capital adequacy ratio of 10.48 percent, according to the NRB. The Central Bank has taken over the management of Madhyamachal after Unity Life International Group was found to have purchased the majority of its shares without informing the central bank. Unity Life was responsible for deceiving thousands of Nepalis by running a network marketing business.
The Central Bank initiated the merger process of the rural development banks owing to their poor performance in expanding access to finance in the rural areas.
However, Central Bank officials said that the merger of all five rural development banks is still a long way off. “All five rural development banks are positive to the merger proposal,” said a senior NRB official. “But, key issues, such as modality of the merger, human resources management, capital structure among others are yet to be finalised.” Given the NRB planning to divest its share from the Sudur Pashimanchal Grameen Bikas Bank, the merger of five is expected to minimise its share in it.
Source: The Kathmandu Post
