NRB to hike paid-up capital requirement for BFIs

KATHMANDU, JUN 26 -

The Nepal Rastra Bank (NRB) is preparing to further increase the minimum paid-up capital requirement for banks and financial institutions (BFIs).

Central bank sources said such a provision “is most likely” to be included in the monetary policy for the next fiscal year. “The monetary policy will speak about the increment in paid-up capital requirement for BFs,” said a senior NRB official. “The required amount, however, will be announced later based on the comments on the policy.”

The central bank plans to increase the capital requirement for commercial banks to Rs 5-10 billion from the current Rs 2 billion.

Central bank spokesperson Bhaskarmani Gnawali said increasing the paid-up capital requirement for BFIs has been necessary for their long-term sustainability. “The capital size can either be increased by injecting extra capital from shareholders or through mergers,” he said. “But, we are prioritising merger.”

The capital size is generally increased through the issuance of rights and preference shares, maintaining reserves and issuing debentures. The central bank officials have long been asking bankers informally to increase their capital.

As the capital size is fixed in the licensing policy, the NRB will also revise it. A majority of the BFIs licensed before the introduction of the existing licensing provision in 2007 have increased their paid-up capital to the required level.

They were given until the end of this fiscal year to do so increase their capital proportionally to the required level.

As per the current licensing policy, commercial banks should have a paid-up capital of Rs 2 billion, development banks Rs 100-640 million and finance companies Rs 100-300 million based on their categories.

Bankers said BFIs would choose merger over other measures to increase their capital.

“We have long been predicting such a move from the NRB,” said a member of Nepal Bankers’ Association. “Such a policy will mou-nt pressure on BFIs to go for merger.”

Source: The Kathmandu Post