Currently, five rural development banks are operating in the country´s five development regions. They were established jointly by the government and the central bank with the objective of extending microfinance services to rural women so that they can gain access to unsecured loans to create self-employment opportunities.[break]
Over the years, these institutions have established 206 branch offices and 7,267 service centers throughout the country, while roping in over 228,000 clients.
“But lately we have observed that creation of five different units to provide same service had raised operating cost without any improvement in service delivery,” NRB Spokesperson Bhaskar Mani Gyawali told Republica. “We hope the consolidation will create one strong unit that can work effectively and efficiently.”
In this regard, the central bank has asked rural development banks to immediately hold special general meetings and seek approval for merger from respective shareholders.
Although majority stake in most of these institutions were held by the government at the time of their establishment, it had started offloading its shares in these units over the years to include public and private sector in the ventures. As a result, the government currently holds an average of 13 percent stake in each of these units.
“Despite the diversity in the structure of shareholders, we hope they won´t express divergent views on merger,” Dharma Raj Pandey, CEO of Paschimanchal Rural Development Bank, told Republica, informing most of the institutions have agreed to take consent of their shareholders by holding special general meetings by mid-July.
Once this is done, due diligence audits of all rural development banks have to be conducted which will identify strengths and weaknesses of different institutions and stake each of the institution can hold in the consolidated unit, Gyawali said.
Currently, the financial position of different rural development banks is not on par. For instance, Sudur-paschimanchal Rural Development Bank has a negative net worth of Rs 83.83 million. These five institutions have also accumulated huge chunk of non-performing loans, which topped 281.62 million in the first half of the current fiscal year, with Paschimanchal Rural Development Bank reporting the highest of Rs 113.3 million of such debt.
Because of this situation, rural development banks, in a report submitted recently to Nepal Rastra Bank, had asked the government to write off bad loans and inject necessary capital to compensate the losses.
Although any formal decision in this regard has not been made, Gyawali said “the government would definitely acknowledge the contribution made by these financial institutions to the society and extend necessary support”.
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