KATHMANDU, July 27: The new minimum paid-up capital requirement for bank and financial institutions (BFIs) gave the impetus to go for mergers and acquisitions.
According to the recent data of Nepal Rastra Bank (NRB), 155 BFIs (including ‘D’ class) have gone for mergers and acquisitions so far. Due to the mergers and acquisitions, the licenses of 112 BFIs have been revoked by the central bank, bringing the number of BFIs down to 43.
Some of the BFIs were pursuing merger and acquisition after the introduction of the merger and acquisition policy. The central bank also decided to raise the minimum paid-up capital to Rs 8 billion in 2015, compelling the BFIs who were unable to meet the capital requirement to go for merger.
NRB’s big push for mergers raises big question of justification
Unveiling the Monetary Policy for Fiscal Year 2015/16, NRB had announced plans to raise the minimum paid-up capital of commercial banks by four times by mid-July 2017. The previous requirement was Rs 2 billion.
The central bank also increased paid-up capital requirements for development banks and finance companies. According to the new provision, national-level development banks will be required to raise their paid-up capital to Rs 2.5 billion, while development banks that have a working area from 4 to 10 districts will have to raise the paid-up capital to Rs 1.2 billion.
Similarly, development banks having presence in one to three districts will have to increase their capital base to Rs 400 million.
The BFIs who are already pursuing merger or acquisition process or other processes to raise capital will be allowed to count the adjusted capital as the new minimum paid-up capital.
“The number of BFIs pursuing merger and acquisition has been increasing after the introduction of merger/acquisition policy aimed at strengthening financial stability,” read the recent report of the NRB.
Many BFIs are also seeking rights issue approval with the Securities Board of Nepal (Sebon) to raise their paid-up capital.
The Sebon data shows that 19 companies have sought the Sebon’s approval to float 135.75 million units of rights shares worth Rs 13.58 billion. Among them one is hydropower company, one insurance company and one manufacturing company, while the rest are all BFIs.
Similarly, 76 listed companies floated 456.42 million units shares -- valued at Rs 45.64 billion -- through rights issues in the last fiscal year -- 2016/17, according to Sebon. Except for seven companies, they were all BFIs.
