NRB introducing policy that lets one BFI to acquire another

ShareSansar, January 31:

Nepal Rastra Bank is planning to introduce an acquisition policy that will allow banks and financial institutions (BFIs) to buy up other BFIs.

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.

In fact the central bank, through its monetary policy for the current fiscal year, had pledged to introduce a policy that will allow one BFI to acquire another one.

The central bank is basing its new policy in the same provision of the monetary policy.

“We are working on a policy that envisages a BFI to acquire another BFI by paying the due amount to the promoter shareholders after calculating the assets,” said a highly placed source privy of the development.

The source further informed the policy was 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.