The Finance Ministry has been considering merging state-owned Rastriya Banijya Bank (RBB) with another government-owned entity NIDC Development Bank. The ministry has prepared a plan of the proposed merger and will be submitting it to the Cabinet for its approval.

Addressing a ceremony organized to mark the 52nd anniversary of RBB on Monday, Deputy Prime Minister and Finance Minister Krishna Bahadur Mahara said he would take the merger proposal to the Cabinet’s next meeting. “I have signed the proposal and it will be presented at the next Cabinet meeting,” said Mahara. “Once the Cabinet approves the merger, the process will be initiated.”

RBB management has said it is planning to initiate the merger process right after getting the government’s go-ahead.

“Once we get the approval, we will form a merger committee comprising of representatives from both institutions,” said Kiran Shrestha, CEO of RBB. “The merger committee will then form two teams to look into technical and managerial issues to execute the merger.”

The technical team’s job will be to conduct a valuation of the assets of the two entities besides appointing an independent auditor to conduct a due diligence audit. Similarly, another team will work out a plan to adjust the workforce of the two organizations in the merged entity. “It will take around six months to complete the merger process,” said Shrestha.

RBB has a paid-up capital of Rs8.58 billion while NIDC has a paid-up capital of Rs415 million and a reserve and surplus of Rs3.02 billion. “After the proposed merger, the new entity will be the largest commercial bank in terms of capital base,” said Shrestha. 

This is not the first time that efforts have been made to amalgamate these two stated-owned banks. Similar announcements were made in the past but the plan became unravelled.

In 2012, the Finance Ministry first moved to merge the two banks but the proposed merger did not happen because NIDC was not very keen on the idea. Moreover, the development bank had its own plan to develop into an infrastructure development bank. 

According to Shrestha, if the Cabinet approves the ministry’s merger proposal, it will take place by any means. “Both organizations are owned by the government; and if it decides to amalgamate them, no one can go against the decision,” he said.

NIDC’s sustained financial revival raised the confidence of its management that it could survive on its own, and did not need to merge with big financial institutions. The state-owned development bank, which was once teetering on the brink of bankruptcy, has posted a cumulative profit since the fiscal year 2011-12.

Subsequently, the government announced in the budget statement for fiscal 2013-14 that NIDC would be transformed into an infrastructure development bank as per its proposal. However, the plan failed to make any headway due to poor preparation and objections by Nepal Rastra Bank that NIDC lacked the financial and managerial capacity to become an infrastructure development bank.

The budget statement for the fiscal year 2015-16 announced that NIDC would be merged with HIDCL. A year later, the plan was abandoned when the next budget was announced.