“Now FIs cannot jump up the category just because they can raise paid up capital. They will need to prove good financial record, governance and business size to earn it,” said an NRB official. [break]
Going by the fresh directives, financial institutions (FIs) must have earned profit for five consecutive years, confined non-performing loans at less than 5 percent and not faced any prompt corrective action in last three years to be eligible for an upgrade. Apart from that, they must also have raised their paid up capital to the level set for the category they are eying to jump to and also their board of directors or officials must not have faced action on governance related charges in the last 3 years.
Likewise, the size of business of a category B FI eyeing to upgrade to category A should be at least 15-fold of its minimum paid-up capital and its client base in the previous fiscal year should be at least 25,000, reads the directives. Similarly, an FI in category C that is eyeing to jump to category B too must have business size of similar proportion, and its client base in the previous fiscal should be at least 10,000.
Eligible FIs seeking permission to upgrade will need to submit five-year business plan and projection, individual details of promoters holding 2 percent or more shares and their self-declaration of no borrowing from the institution, among others. FIs seeking upgrade permit should also halt trading of their shares during the period of lodging application. They can reopen trading only after a decision related to upgrading is reached.
“The provision has been set mainly to stop foul play in the stock market and prevent unscrupulous players from turning market sentiment in their favor,” said the official.
The central bank said it would process the application rigorously, examine documents and inspect the physical and other infrastructure of the applicant FIs. If satisfied, the back could principally grant them an upgrade and issue approval in three months. Based on the approval, FIs will need to formally lodge application to obtain license to operate as upgraded institutions.
Aiming to encourage merger and acquisition, the central bank has said it will give high priority to applicants planning to undergo merger prior to upgradation. In such case, the institutions should complete procedures related to merger and acquisition first. “Only after that the central bank will process their requests for upgradation with high priority,” reads the directive. Meanwhile, NRB has suspended upgrading of financial institutions of category D.
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