NRB to unveil merger guidelines in 2 weeks

Fri, May 6, 2011 12:00 AM on Others, Others,
KATHMANDU, May 6:
Nepal Rastra Bank (NRB) is unveiling new guidelines on merger and acquisition offering various incentives to banks and financial institutions (BFIs) within two weeks.

Governor of NRB Dr Yuba Raj Khatiwada disclosed that the central bank was currently discussing various incentives that could be provided to spur merger in what he termed as the “overcrowded” financial sector.

“The package will be announced in five to 10 days,” said Dr Khatiwada, adding that the guidelines will offer genuine incentives to the BFIs to encourage merger.

Although he did not elaborate much on central bank´s offer, he disclosed that the guidelines will relax its provision which limits members of a family or business group from holding more than 15 percent share in any BFIs.

It will open upgrading of BFIs into national level institution if two or more than two regional or district level institutions merged with each other.

The central bank has been laying special emphasis on merger and acquisition of BFIs particularly after Dr Khatiwada took charge of the NRB. On its request, the government has already announced waiver of capital gains tax (CGT) on transactions related to merger and acquisition for the BFIs.

Following such fiscal incentive, the central bank in the Monetary Policy for the current fiscal year had promised to come up with additional incentives to lure the BFIs promoters toward merger and acquisition.

However, bankers have argued that the existing fiscal incentives alone will not attract many promoters to undergo merger. They have mainly sought the government to provide additional incentives like waiver of tax liability on staff lay off, waiver of income tax for three years and cut in corporate tax from existing 30 percent to 25 percent.

Governor Khatiwada did not approve the demand of the income tax waiver. “Income tax is paid only in case of profit. Seeking its waiver makes no sense,” said he.

Nonetheless, he added that he has already talked with the government over addressing other tax related concerns of BFIs in the upcoming budget.

Apart from these incentives, the central has also announced it will offer relaxation on provisions related to capital adequacy ratio, deprived sector lending, single borrower´s limit, credit-deposit ratio for certain span to the BFIs opting to undergo merger and acquisition.

“These are important relaxations. We believe this will encourage promoters to take affirmative actions towards merger,” said Dr Khatiwada at a program on Thursday.

The central bank clarified that it has already removed a provision of “forceful merger” that it discussed in the initial phase of guidelines preparation.

Source: Republica