E-Kantipur

KATHMANDU, MAR 22 -

The board of Nepal Rastra Bank (NRB) on Monday decided to allow banks and financial institutions (BFIs) to open asset management companies to operate mutual funds.

While a number of banks have taken the initiative in this regard, the absence of provisions regarding whether BFIs could open mutual fund companies in the Bank and Financial Institution Act (BAFIA) has compelled them to halt their preparations.

“The board has allowed the central bank to permit BFIs to open companies to operate mutual funds by fixing some criteria,” said an NRB board member. The central bank will open the door for establishing such companies through Article 47 of BAFIA that has provisioned that banks can venture into other businesses as determined by the central bank.

As per the criteria for BFIs, they should be in profit for the last five consecutive years, they can work in the field through a subsidiary company and their net worth should be positive. They must be financially sound while giving risk weight to the capital of such companies, according to a senior NRB official.

The mutual fund regulations introduced by the Securities Board of Nepal have fixed several criteria to operate an asset (fund) management company to operate mutual funds. Among the key criteria set by the regulation are that BFIs having a paid-up capital of more than Rs 1 billion can open such a company, and they should have completed five years of operation, registered profits for the last three years and have a paid-up capital not less than its net worth.

The Securities Board of Nepal, the stock regulator, has been pushing for the last few years for mutual funds in a bid to widen the capital market and create additional investment opportunities for small investors.

Nabil Bank, Kumari Bank, NMB Bank, DCBL Bank and a few others have already applied to the central bank for approval to start the business. According to NMB officials, the bank has already conducted a feasibility study and documented the minutes of its annual general meeting that endorsed the proposal to establish a mutual fund. NMB’s feasibility study has confirmed the viability of the business.

“We will now speed up the process by targeting to start the business from the next fiscal year,” said NMB Bank Chief Executive Officer Upendra Poudel. “Our work had been stalled due to ambiguities about the NRB decision.”

Nabil’s AGM has also endorsed the proposal to set up a mutual fund and it is at the preparation stage.

While abiding by the regulation, only sound commercial banks can open a company to operate a mutual fund. Only BFIs having a paid-up capital more than Rs 1 billion can open such a company.

National-level development banks should increase their paid-up capital to Rs 640 million by mid-July 2013 and national level finance companies should have Rs 200 million by that time.

Posted on: 2011-03-22 09:09

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