KATHMANDU, Feb 29: Nepal Rastra Bank (NRB) Governor Chiranjibi Nepal has revealed that he has been facing pressure from institutions like World Bank and the International Monetary Fund (IMF) to shorten the deadline provided to bank and financial institutions (BFIs) to meet the new paid-up capital.
The revelation came in the wake of complaints from the bankers that the two-year deadline set by the central bank was too short.
"We have given BFIs a long time to meet the new paid-up capital requirement. We do not have any intention to extend the deadline. Instead, I am thinking about reducing the deadline as institutions like the World Bank and IMF are piling pressure on me to shorten the deadline saying that it is possible to raise paid-up capital within six months,” Nepal said at a program organized in Kathmandu on Sunday to unveil the mid-term review of the Monetary Policy for Fiscal Year 2015/16.
Unveiling the Monetary Policy, NRB had instructed BFIs to raise the minimum capital within two years. With the directive, commercial banks have to raise their paid-up capital by four times to Rs 8 billion.
BFIs have already submitted their paid-up capital plans to NRB.
Though IMF has been urging the central bank to take initiatives for financial consolidation, Governor Nepal's remark indicates that the central bank is in no mood to tolerate any laid-back approaches of the BFIs in strengthening their capital base.
Earlier in November last year, IMF had even recommended NRB to take corrective action and administrative sanctions against BFIs that fail to meet the required capital levels.
"The two-year phase in period to increase the paid-up capital demands diligent NRB oversight. A formal review process should be established to ensure that each BFI has internalized the obligation to increase the capital and adheres to the capital plan," reads the report by the 2015 Article IV Consultation of the IMF. "Also included in this process should be a robust review of the accounting techniques used by BFIs, to minimize the potential for overstated earnings. And the NRB should establish a contingency plan that would include corrective action and administrative sanctions in the event of failure to meet required capital levels."
Governor Nepal also said that that the central bankers and governors of the countries which had been into the financial crisis told him that the two-year period was more than enough to complete merger and acquisition for boosting capital. "When I talked with the governors and deputy governors of the countries which had been in the crisis, they said that it was too long. According to them, countries like Malaysia, Thailand and Indonesia provided only one year," he added.
The decision to raise minimum-paid up capital has set BFIs into a merger and acquisition rush. As of mid-January, 83 BFIs have merged to form 31 BFIs, while two finance companies were acquired by a commercial bank and one development bank was acquired by another development bank. Most of the BFIs have announced double-digit bonus shares to their shareholders, while many are also floating right issues
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