The Securities Board of Nepal (Sebon) has declared a moratorium on the issuance of merchant banking licences with the aim of improving the area of service being offered by the existing institutions. The cessation goes into effect on Sunday.

Currently, Sebon permits merchant bankers to offer services in four areas, namely share registrar, issue manager, underwriting and portfolio management.

However, most of these institutions have been operating generally as issue manager. Sebon Spokesperson Niraj Giri said they had halted providing licences temporarily. “We took the step to manage the existing firms and enhance their professionalism and working areas before allowing new firms to enter the market,” he said. “In this regard, we have prepared a draft of the amended regulation and are awaiting final approval from the board and Finance Ministry.”

According to Sebon, the amended regulation will expand the terms of reference of merchant bankers. They will have to expand their service areas from the traditional ones they have been performing after the new provision is enforced.

The new areas of service Sebon has envisaged for merchant bankers are investment advisory, loan syndication and valuation, among others. For example, under loan syndication, merchant bankers will have to work as a bridge to manage funds for real sector companies from financial institutions.

Sebon has also targeted increasing the capital base for merchant bankers through the amended regulation.

At present, these institutions have to maintain a paid-up capital of Rs10-40 million depending on their area of work.

“Business has been swelling and the existing capital base will not be sufficient for them to assume higher risk,” Sebon said in a press statement.

There are 19 merchant bankers operating in the country. Meanwhile, 10 others are in line to receive licences. According to Sebon, the new provision will not be applicable to those who have already applied for permits.

Sebon has been issuing merchant banking licences to interested firms since its establishment in 1993.

In the beginning, they were allowed to work as issue manager; and since 2007, they have been allowed to expand their services to four areas under an amended regulation.