NRB: BFIs can invest upto 30%, threshold of 1% only for short-term trading

ShareSansar, August 21:

Nepal Rastra Bank (NRB) has cleared the air regarding the threshold of the banks and financial institutions (BFIs) investment in the shares.

Talking with ShareSansar, Man Mohan Shrestha, spokesperson of the NRB, said that the investment cap imposed by the NRB was only for the ‘held-for-trading’.

‘Held-for-trading’ refers to the 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 limit is just to those investments that are made for the short-term selling. The move is to discourage the tendency of counting the profits from the rise of the share prices in the volatile market which increases the risk for the BFIs,” Shrestha told ShareSansar.


NRB, he clarified, has not reduced the 30 percent investment out of the total core capital in other trading like – ‘held to maturity’ and ‘available for sales’.

“We should be clear that the BFIs still can invest 30 percent in the share market, but that should not be for the immediate sell, say like for more than one year,” said Shrestha. They can make investment on other share categories- ‘held for maturity’ and ‘available for sales’ where we have not change the limit of 30 percent.

‘Available for Sales’ means buying the shares that if for not short-term selling purpose, but to be sold out when there is cash crunch in the BFIs while ‘held for maturity’ is bonds and other equities which have a certain maturity period.


Meanwhile, the investors have said that the ‘unclear’ new directive of the Nepal Rastra Bank (NRB) which instructs the banks and financial institutions (BFIs) limit their share investment to one percent will only create panic in the secondary market. They met the officials of the Ministry of Finance (MoF) today morning to express their concerns about the ‘out of sudden decision’ of the NRB regarding the threshold.


They have also said that the central regulatory bank should make careful assessment about the possible impact of any policies in the stock market before introducing it.

Dipendra Agrawal, a stock investor who was also on the delegation, told ShareSansar that the joint secretary Krishna Prasad Devkota assured them of conveying their concerns to Finance Minister Dr Ram Sharan Mahat.

The investors have said that the NRB should play the positive role to uplift the market. “While we are talking about attracting the foreign investors, this sort of sudden decision of the regulator discourages the stock market, which gauges the overall sentiment of the investors,” he added.

NRB spokesperson Shrestha, however, said that there was no need to panic. “The circular is clear. The threshold is aimed to curb the tendency of the BFIs to buy the shares just for the short term selling. The overall investment of 30 percent has remained unchanged,” Shrestha said.