Economy

Six FIs may face ban on lending

Published by Octron on November 28, 2010

Six financial institutions (FIs), which are currently facing ban from Nepal Rastra Bank on collecting deposits, may face ban on lending as well for failing to increase paid up capital to required level. The institutions¿Bhajuratna Finance, Kathmandu; Nameste Bittiya Sastha, Dang; Investa Finance, Birgunj; Mercantile Finance, Birgunj; Multipurpose Finance, Rajbiraj; and Srijana Finance, Biratnagar¿are currently facing ban on deposit collection and they have still failed to increase the capital to the required level.

As per the licensing policy of NRB, the central bank can ban on lending of such financial institutions for failing to meet the target of the paid up capital for FY 2009-10. If they fail to increase capital to the required level by FY 2010-11, the central bank has rights to prohibit them to from doing all kinds of banking transactions except loan recovery and deposit withdrawal. After that, the policy says NRB will initiate action towards scrapping the licence of the banks and financial institutions concerned.

National level Development Banks should increase their paid up capital up to Rs 640 million; 4-10 district level banks to Rs 200 million and 1-3 district level to Rs 100 million. Regional level development banks with merchant banking license should increase their capital to Rs 300 million. As far as finance companies are concerned, the paid up capital should reach Rs 200 million for national level and Rs 100 million for regional level by the end of FY 2012-13. Finance companies involved in merchant banking should have Rs 300 million.

Banks and financial institutions (BFIs) should increase the capital to the required level by the end of FY 2012-13 by assuming the FY 2007-08 as base year. A senior NRB official said it would ban on lending of the FIs, if they fail to increase capital and continue to flout the NRB rules. Although the central bank had banned 15 development banks and finance companies in three phases over the last eight months from collecting deposit, ban on five FIs has been lifted, while three are in the process of getting the ban lifted after they increased their capital to required level. Banepa-based Samjhana Finance has been declared crisis-ridden. Among the FIs getting rid of ban on deposit collection are Dang-based Western Development Bank, Pokhara-based Api Finance, Kathmandu-based Merchant Finance and Valley Finance and Kailali-based Seti Finance Limited.

Kathmandu-based Himalaya Finance, Shikhar Finance and Nepalgunj-based Karnali Bikas Bank are in the process of getting the ban lifted after they increased their capital to the required level, according to the central bank. Mercantile, Investa and Multipurpose have also failed to issue initial public offering by mid-October as directed by the central bank on Jan. 21. United Development Bank and Hama Merchant Finance are the other financial institutions failing to issue IPO within deadline. Banks and financial institutions should issue IPO within two years of their establishment, according to NRB rules. It has been more than three years since these FIs were established.

While issuing notice about a year ago, the central bank had warned the 14 FIs to issue ordinary shares by mid-October or else their liscences could be cancelled. “We may be compelled to do so if they continue to disobey our directive,” said the NRB official.

Source: Kantipur

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