E-Kantipur

KATHMANDU, FEB 18 -

Relaxation in single obligor limit, ownership pattern of the merged bank, deprived sector lending and branch expansion are some facilities the Nepal Rastra Bank (NRB) is planning to offer Banks and Financial Institutions (BFIs) going for merger.

The central bank has prepared an initial draft of the merger bylaw including the incentives to be given to BFIs going for merger. The central bank will hold discussions with stakeholders before giving a final touch to the bylaw.

An increasing number of BFIs are preparing for merger and they are waiting for NRB’s incentives. “We are waiting for NRB’s incentives,” said Prithvi Bahadur Pande, chairman and chief executive director of Nepal Investment Bank Limited (NIBL). He says the central bank has to provide good incentives to encourage mergers.

Promoters of three medium level banks are also currently exploring merger possibilities. NB group-promoted Nepal Bangladesh Bank and Nepal Credit and Commerce Bank are carrying out homework for their unification. State-owned Rasriya Banijya Bank and Nepal Industrial Development Corporation are also starting the merger process.

Singe obligor limit means the maximum lending a bank or financial institution can make to a single sector. The monetary policy for the current fiscal has provisioned that BFIs can lend only 25 percent of the core capital in a single sector, including both fund based (cash) and non-fund based (bank guarantee etc). A senior NRB official said the NRB could ignore the noncompliance of this provision by a merged institution for a certain period as an incentive.

As per the existing law, a single group cannot hold over 15 percent stake in a merged institution. However, the central bank may also relax this provision for a certain period. “The central bank will allow a singe group to hold over 15 percent stake for a certain period,” said the official.

Branch expansion is another area where the NRB is planning to give facilities. Currently, BFIs cannot open branch in the Capital until they open two branches outside, one of which should be opened in a remote district fixed by the government, according to the monetary policy for the current fiscal year. “Merged BFIs will not have to abide by this rule for the expansion of certain number of branches,” said the official.

The deprived sector lending is another area where the central bank is planning to give incentives. Currently, commercial banks will have to lend 3 percent of their total lending to the deprived sector.

Development banks should lend 2.5 percent and finance companies 2 percent, as per the monetary policy. “We have proposed relaxation for a certain period in this provision,” said the official.

The NRB, however, is not conformable in providing relaxation in risk related issues such as capital adequacy ratio and provisioning. The central bank is proposing these incentives after this year’s budget removed the existing provision of taxing assets and liabilities as disposal.

The main demand of the bankers is the government should provide certain percent of corporate tax exemption. “The government hesitated to provide tax exemption this year despite our repeated request,” said Ashok Rana, president of Nepal Bankers’ Association. “A good incentive is necessary for making banks to think seriously about merger.”

Posted on: 2011-02-18 09:05

Post Your Comment

Please note that all the fields marked * are mandatory.
* Full Name
* Address
* Email Address
* Comment
* Captcha	Get another CAPTCHA code
Note:	Comments containing abusive words or slander shall not be published.