BAFIA Amendment Bill

Provision on conversion of promoter shares stirs debate

Published On: September 19, 2016 12:50 AM NPT By: Sagar Ghimire  | @sagarghi

KATHMANDU, Sept 19: A provision in the bill to amend Bank and Financial Institution (BAFIA) Act, which allows promoters of a bank or financial institution to sell their shares to public after certain period, has stirred a debate between former finance ministers and former central bank governors.

 The bill had initially proposed the lock up period of 10 years for the promoter shareholders to convert their shares into public shares. But such period was reduced to seven years by a sub-committee formed by the parliamentary Finance Committee which was approved by the committee on May 26 for tabling it in the full house of the parliament.

The amendment bill, however, was sent back by the full house for revision in some of the provisions including the lock up period. 

If the provision of 7-year lock up period is endorsed, a promoter shareholder can offload his shares in the stock market or convert into public shares after 7 year of a bank or financial institution coming into operation.

Currently, a bank must have 51 percent promoter shareholders, while public can have up to 49 percent of ownership. The process for promoter shareholder to sell his ownership involves a long process, including the permission from the Nepal Rastra Bank (NRB). 

Speaking at a discussion organized by the Finance Committee on Sunday, former finance minister Bishnu Prasad Paudel criticized his predecessor Ram Sharan Mahat for introducing the provision of lock-up period while he was the finance minister. 

"There was no such provision in the initial draft prepared by the central bank. I do not know the rationale behind introducing the lock-up period in the bill," Paudel, who is also a CPN-UML leader, said. "The provision of lock up period is aimed at increasing the share price of BFIs, and only encourages quick profit-making from rise in share prices," he added. 

He, however, defended his decision to continue with the bill that was tabled by his predecessor Mahat. "Since the bill was expected to be approved as soon as possible, I decided to start the bill from where it was since there was room for correction of errors in the parliamentary proceeding," he added. 

However, former Finance Minister Ram Sharan Mahat told Republica that he proposed the lock up period of 10 years to provide easy exit policy to the investors. "An investor cannot lock his capital for an indefinite period. An entrepreneur will always seek to transfer his resources from one sector/business to another, as he will not confine his capacity to a single sector," said Mahat, who is also a leader of Nepali Congress. "The entrepreneur should be given the exit policy where he would release his investment and start some new enterprise or business. We cannot impose such rule which is not practiced anywhere in the world," he added. 

Former NRB Governor Yuba Raj Khatiwada also said promoters should be restricted from converting their shares into public. "Promoters should have at least 51 percent of the ownership of a bank. Conversion or sale of such shares in the stock market should be restricted," he added.

"Promoter shares should be traded only among the promoters. That should not be allowed to be diverted. If allowed for conversion, depositors will not be able to identify who the owners are. It does not help to create an environment of confidence in a bank," he added. 

Former NRB Governor Tilak Rawal, however, said that the discretion of allowing conversion of promoter shares to public should be given to the central bank. Another NRB Governor Ganesh Bahadur Thapa said that there was not any substantial difference between lock up period of 7 or 10 years.

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