RBB readies to submit capital plan to NRB

KATHMANDU, FEB 21 -

Rastriya Banijya Bank (RBB) is preparing to submit its new capital plan to Nepal Rastra Bank (NRB) to turn its capital base to the required level.

As its net worth is still negative, around Rs 9 billion, the RBB is in need of huge resources to make its net worth positive as well as to increase its capital adequacy ratio to the required level of 10 percent. The central bank had asked the RBB to present its capital plan as per its changed financial status.

“We are now preparing to submit our capital plan to increase our capital to the required level within 2-3 years,” said Krishna Prasad Sharma, chief executive officer of RBB. “However, details are yet to be worked out.” The RBB plans to submit its capital plan within mid-March.

According to him, a number of options, such as the government injecting resources, issuing debentures and issuing shares to the public (if allowed as an exception for the RBB), can recapitalise the largest bank of the country.

Earlier, RBB has sought Rs 10 billion from the government to make the bank a healthy institution. Under its plan, it wanted to sell 3.6 million promoter shares that remain in Nepal Investment Bank for an additional amount required.

However, the bank will need an additional amount due to its increased risk weighted assets, which demand additional paid up capital. Its paid up capital should reach around Rs 5 billion as a bank should have risk weighted assets not more than 10 times of its paid up capital as per the NRB directive. “We need about Rs 14 billion to recover the loss of Rs 9 billion and a capital of Rs 5 billion and turn the bank a healthy institution,” Sharma said.

The central bank said it will decide on the RBB’s proposal soon after it receives the plan. “As we have already approved Nepal Bank Limited’s (NBL) capital plan, we will decide on the RBB’s plan soon,” said NRB spokesperson Bhaskarmani Gnawali.

Regarding Nepal Bank Limited, the central bank approved a proposal to issue rights shares and sell some banking assets for recapitalisation of the oldest bank. The government is, however, yet to approve this plan. Being a fully government-owned bank; the government may have to inject hefty sums for the RBB which needs more resources as compared to the NBL.

The government has been reluctant to provide resources for the bank because of the size of resources needed. The government is also holding discussions with donors, including the World Bank, for possible support to the bank. “A proposal on soft loan to inject capital in the RBB has also come,” said a senior finance ministry official. “We are yet to discuss it seriously.” On the other hand, its proposed merger with the NIDC Development Bank is also expected to help the bank to some extent. “There will not be a big capital injection from the merger,” Sharma, however, said.

However, the RBB has a chance to use the fixed assets of the NIDC worth Rs 10 billion by selling them to increase the RBB’s capital base after the merger. NIDC owns plots of land in Kathmandu, Pokhara, Biratnagar, Bharatpur, Mahendra Nagar, Surkhet and Dhangadi.

With the government deciding to merge the two state-owned BFIs, the RBB is also positive on this. “There is no problem in incorporating all the staff of the NIDC in the RBB at the moment,” Sharma said.

Source: Kantipur