Corporate Development Bank, Kuber Merchant Finance and Lalitpur Finance will soon be removed from the list of ‘problematic’ financial institutions, as their financial health has improved significantly, according to the Nepal Rastra Bank (NRB), the banking sector regulator.

These three financial institutions have met the minimum regulatory capital adequacy ratio of 11 percent, a senior NRB official said on condition of anonymity. “Deposits of public in these institutions are also safe,” the official further said, adding, “We will soon remove the tag of problematic put on them.”

The NRB had declared Corporate Development Bank as ‘problematic’ in December 2014. Kuber Merchant Finance and Lalitpur Finance were labelled as ‘problematic’ in January 2013 and March 2015, respectively. 

The financial health of these companies had deteriorated after disbursing loans in a haphazard manner and failing to maintain financial discipline.

In September, NRB Spokesperson Narayan Prasad Paudel had said financial health of the three institutions was gradually improving.

Earlier, Arun Finance and General Finance were also removed from the list of ‘problematic’ institutions. Arun Finance was declared ‘problematic’ in January 2015 and removed from that list in January 2017. General Finance was declared ‘problematic’ in May 2013 and removed from that list in December 2016.

Currently, nine development banks and finance companies, including Corporate, Kuber and Lalitpur, are categorised as ‘problematic’ financial institutions. The other ‘problematic’ financial institutions are: Nepal Share Markets and Finance, Crystal Finance, Capital Merchant Banking and Finance, World Merchant Banking and Finance, Narayani Development Bank and Nepal Finance.

The NRB has said these finance companies and development banks can be removed from the list of problematic institutions if they maintain 25 percent of the new paid-up capital requirement and meet the capital adequacy ratio.

These institutions can meet 25 percent of the new paid-up capital requirement by factoring in call-in-advance—the money contributed generally by shareholders for the purpose of injecting fresh capital in the financial institution, says a directive issued by the NRB. 

The NRB has recently revised the minimum regulatory paid-up capital requirement for banks and financial institutions. As per the new provision, national-level development banks must hold minimum paid-up capital of Rs2.5 billion, up from Rs640 million in the past.

Development banks operating in four to 10 districts and one to three districts, on the other hand, should maintain minimum paid-up capital of Rs1.2 billion and Rs500 million, respectively, up from Rs200-300 million and Rs100-300 million in the past.

Similarly, national level finance companies and those operating in four to 10 districts must maintain minimum paid-up capital of Rs800 million, up from Rs300 million in the past, while  finance companies operating in one to three districts should maintain minimum paid-up capital of Rs400 million, as against Rs100-300 million in the past.

“Problematic institutions can meet the new minimum regulatory paid-up capital requirement within two years of getting rid of the ‘problematic’ status,” says the NRB directive.