NRB issues licensing policy for infrastructure development banks

Published On: August 12, 2017 09:59 AM NPT By: Sagar Ghimire  | @sagarghi

KATHMANDU, Aug 11: Nepal Rastra Bank (NRB) has issued the licensing policy for the establishment of infrastructure development banks, paving way for interested individuals or firms to apply for a letter of interest and get an operational license to set up such bank.

The central bank issued the licensing policy for the establishment of infrastructure development banks after the recently amended and integrated Bank and Financial Institutions Act (BAFIA) had a separate provision for such banks. The bank thus established would be able to finance mega infrastructure projects. 

The government had announced in its consecutive budget speeches since Fiscal Year 2007/08 that an infrastructure development bank would be opened in partnership with the private sector. However, the plan never materialized due to lack of necessary legal framework. 

The central bank has set Rs 20 billion as the minimum paid-up capital requirement for an infrastructure development bank compared to the minimum paid-up capital requirement of Rs 8 billion for an ‘A’ class commercial bank. 

While the NRB has currently issued a moratorium on the licensing of a new bank or financial institution, the new policy to allow the establishment of infrastructure development bank comes in the wake of demands from the private sector of a new financial institution having the capital and capacity to finance big-scale infrastructure projects that existing BFIs are unable to do. 

Private sector leaders expect that the establishment of infrastructure development bank can bankroll big projects like roads and mega hydropower projects to help bridge the infrastructure gap of the country.   

According to the licensing policy, the promoter shareholders must have at least 51 percent of shares while a minimum of 30 percent ownership must be allocated to the public. Such bank can provide up to 0.2 percent of shares to its employees. 
The infrastructure development bank can also be established as foreign joint venture, for which the NRB has allowed only a foreign bank or financial institution to become a shareholder.

For the foreign joint venture, a foreign bank or financial institution can have minimum 20 percent to maximum 85 percent of stake. It must have at least 15 percent of public ownership. 
The central bank has also restricted Nepali promoter shareholders from investing the borrowed money from a bank and financial institution into the infrastructure development bank.

Non-resident Nepalis can also have shares on the infrastructure development bank as long as their investment comes into the country as remittances through banking channel. 
“We have opened the license for the new infrastructure development bank, and we will issue the letter of interest and operational license after reviewing the applications that come through a due process, meeting the requirements and conditions set in the policy,” said Harisharan KC, acting executive director at Financial Regulation Department of the NRB. 

Among others, the infrastructure development bank can float loans and make equity investment on infrastructure development projects, issue domestic and foreign currency denominated financial instruments to mobilize financial resources on infrastructure projects, mobilize long-term deposits, and issue debentures for arranging resources and leasing trading. 

The government has been mulling investing on such infrastructure development bank since long as existing BFIs lack capacity to finance mega projects due to liquidity mismatch. Liquidity mismatch refers to the position of a bank whereby the deposits that it holds are for a shorter period while the maturity of loans that it floats is for a longer period. 

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