Proposed NRB Act envisages hiking paid-up capital

Proposed NRB Act envisages hiking paid-up capital

May 3, 2014-

The proposed Nepal Rastra Bank (NRB) Act has envisaged increasing the central bank’s paid-up capital. The draft of the proposed Act is currently under discussion at the Finance Ministry.

Sources at both NRB and Finance Ministry said the draft has proposed increasing the central bank’s paid-up capital to Rs 5 billion from the current Rs 3 billion.

Senior NRB officials also admitted the draft talks about increasing the capital, but they did not divulge much information, saying it has been months since the draft was sent to the Finance Ministry. Officials at the Finance Ministry said it has planned to forward the draft to the Law Ministry for its opinion in the next two weeks.

Another key feature of the proposed Act is to give more power to the central bank to liquidate crisis-ridden BFIs.

Once the Act comes into effect, the central bank will have the authority to liquidate troubled BFIs by clearing all assets and liabilities.

Currently, the central bank only can recommend to the court to liquidate a BFI, but the court has the final say on whether to do so. The appellate court appoints a liquidator, who will carry out the liquidation process.

However, the proposed Act states the appellate court will declare BFIs liquidated after the central bank completes clearing assets and liabilities of the troubled BFIs.

The NRB has been given more authority as the liquidation process of few financial institutions (FIs) is taking a longer time, said NRB officials. Not a single liquidation has been completed since the central bank decided to liquidate Nepal Development Bank in 2009. The central bank has so far decided to send three financial institutions—Nepal Development Bank, Samjhana Finance and United Development Bank—to liquidation.

The International Monetary Fund has long been asking Nepal to create a provision allowing the central bank to liquidate troubled BFIs.

Although a preliminary draft of the Act had provisioned three deputy governors and the governor’s appointment by the President,

the provision has been removed in the final draft, according an NRB official.

The proposed Act has mentioned in its preamble that the central bank’s roles would be controlling inflation, managing balance of

payments and maintaining financial stability, which are more or less similar to the preamble of the NRB Act 2002.

Published: 04-05-2014 11:13

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