BFIs barred from issuing dividend, extending branches

  • failure to meet capital requirement
- POST REPORT, Kathmandu
 BFIs barred from issuing dividend, extending branches

Aug 15, 2014-

Nepal Rastra Bank (NRB) has banned banks and financial institutions (BFIs) failing to meet paid-up capital requirement by mid-July 2014 from distributing cash dividend and expanding branches.

The BFIs have also been prohibited from collecting deposits more than 5 percent of that maintained as of mid-September, and extending loans more than 5 percent of that maintained as of mid-September.

The central bank’s move has come after several A, B and C class BFIs failed to meet the paid-up capital requirement.  As per the licensing policy of the central bank, commercial banks have to maintain a paid-up capital of Rs 2 billion, national level development banks Rs 640 million, national-level finance companies Rs 200 million.

The paid-up capital requirement for development banks covering 4-10 districts is Rs 200 million and for those covering 1-3 districts Rs 100 million. Finance companies covering 1-3 districts should haev a paid-up capital of Rs 100 million.

After announcing its plan to penalise BFIs failing to meet the paid-up capital requirement through the monetary policy, the central bank issued the directive on Friday to implement the policy.

Central bank officials said although many commercial banks, development banks and finance companies are yet to increase their paid-up capital to required level, all commercial banks and development banks, except for two, are expected to meet the requirement with retained earnings, profit and merger by this year.

“The main problem lies with finance companies. There are 17 finance companies that have failed to meet the capital requirement. Except 2-3 companies, all other finance companies are not in a position to fulfil the requirement trough their earnings, bonus and rights shares,” said NRB Spokesperson Manamohan Kumar Shrestha.

He said out of 17 finance companies, seven have promised to fulfil the paid-up capital requirement by either issuing bonus or rights shares, while nine have pledged to go for either merger or acquisition. One, Bhaktapur Finance, is yet to do initial public offering, which is expected to ensure the fulfilment of the capital requirement.

NRB Governor Yubaraj Khatiwada on Thursday invited the finance companies’ promoters and asked them to either go for merger or acquisition if they could not increase their capital through rights and bonus shares or profits.

As of mid-March 2014, seven commercial banks have not maintained their paid-up capital as per the requirement, according to NRB statistics. Likewise, 24 development banks out of 84 have failed to do so.

“Any BFI managing to maintain the required paid-up capital in their balance sheet at the end of the last fiscal year will avoid the ban,” said the NRB official.

Since last fiscal year’s monetary policy, the central bank has made it mandatory for BFIs to have required paid-up capital.

Published: 16-08-2014 09:48

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