Capital increment plan will end ‘B’ class identity of many dev banks – My Republica


KATHMANDU, Oct 12: While commercial banks have opted various plans like merger and acquisition, bonus and rights shares distribution, and follow-up offering (FPO) to meet the new capital requirement, many development banks are finding it difficult to retain their 'B' class status.

Development bankers say most of the development banks, particularly those with license to operate in one to three districts, will have no option except going for merger with commercial banks to meet the new regulatory requirement. While doing so, they will lose the status of 'development bank'.

Around half of the development banks in the country are planning to go for merger with institutions of same class. Similarly, remaining want commercial banks to be their merging partners.

There are 76 banks in the country licensed to operate at national level, four to ten districts and one to three districts.

"Around 50 percent of development banks can meet the new paid-up capital requirement by undergoing merger with two or three institutions of same class. Similarly, around one-third of the remaining development banks want commercial

banks to be their merging partners," Krishna Raj Lamichhane, president of Development Bankers Association, Nepal (DBAN), told Republica. "Few development banks are still undecided about their merging partners."

Unveiling the Monetary Policy for Fiscal Year 2015/16, Nepal Rastra Bank (NRB) asked BFIs to raise their minimum paid-up capital within two years. According to the new requirement, the national level development banks are required to raise their paid-up capital to Rs 2.5 billion from Rs 640 million. Similarly, development banks licensed to operate in four to ten districts, and one to three districts must raise their capital base to Rs 1.2 billion and Rs 500 million, respectively, from Rs 200-300 million and Rs 100-300 million.

The paid-up capital increment plan is in line with the central bank's strategy to scrap the existing classification of bank and financial institutions (BFIs). The Financial Sector Development Strategy has recommended to the central bank to change existing classification structure of BFIs.

At present, NRB has classified BFIs into four classes — class 'A' commercial banks, class 'B' development banks, class 'C' finance companies, and class 'D' microfinance companies.

"It seems that the NRB is working to reduce the number of BFIs and remove the existing classification system," said Lamichhane.


Published on: My Republica (Oct 12,2015)