Economy, Market Watch

NRB suspends FIs’ upgradation

Published by Octron on July 7, 2010

Nepal Rastra Bank (NRB) has halted the upgradation process of three financial institutions to `A’ class commercial banks for the time being. The NRB says it will allow the upgradation after making a “certain new policy.” Among the institutions whose upgradation process has been halted are Sanima Bikas Bank, Standard Finance Company and Nepal Share Market and Finance Limited. Nepal Share Market has already increased its paid up capital to the required Rs. 2 billion, while others are in the process of doing so, according to central bank sources.

The NRB has also halted new licences for banks and financial institutions for the last few months although it has allowed `D’ class financial institutions to expand their presence. NRB spokesman Gopal Kafle told the Post that the upgradation process will be stalled until a new monetary policy is issued.

International Monetary Fund has been stressing the need to stop the new licences for the past one year. Nepal Bankers’ Association has also been stressing that the NRB should first assess how many banks Nepal needs before taking a decision on new licences. However, Kumar Lamsal, the chief executive officer of Sanima, said there was no logic behind NRB’s decision to stop his company from becoming an `A’ class bank as it has been maintaining good governance and good infrastructure, has experienced manpower and the process of increasing the capital is on. “I have not received an official letter from the NRB on the stop to the upgradation process yet,” he told the Post. The annual general meeting (AGM) of the Non-Resident Nepalis-run company had decided to upgrade the development bank to a commercial one in December 2009. In order to increase the capital, it is issuing rights shares on the basis of 1:1.5, which will allow it to increase the capital to above Rs. 2 billion. “We are in the process of getting an approval from the Securities Board of Nepal to issue rights shares,” Lamsal said. It has a paid up capital of Rs. 806.4 million currently.

Likewise, Standard Finance had also applied last January for an upgradation from the `C’ class finance company. It has a paid up capital of Rs. 1 billion and seeking to increase it by issuing rights shares on a 1:1 basis. With the central bank opening doors for institutions to seek licences before increasing their capital, the latter have started applying for the same before fulfilling the capital requirements. A former senior official of the NRB told the Post that the existing banks are more than what the country requires, but the new licensing policy cannot be stopped until the existing Act is amended.

Source: Kantipur

Readers Rating: