KATHMANDU, Jan 28: The cabinet on Friday approved a proposal for merger between Rastriya Banijya Bank (RBB) and NIDC Development Bank.
Deputy Prime Minister and Minister for Finance Krishna Bahadur Mahara had tabled the proposal to merge the two state-owned financial institutions in the cabinet.
While RBB is a commercial bank, the objective of NIDC was to support industrial sector of the country. But with the changed scenario in the banking sector, the government transformed developed NIDC into a development bank.
Both the institutions had huge defaulted loans. The RBB - along with Nepal Bank Ltd (NBL) -- recovered under the financial sector reform program. But NIDC failed to work according to its objective and also could not compete with the mushrooming privately owned development banks.
Like all the other financial institutions, both the state- owned class 'A' and class 'B' financial institutions come under the purview of the central bank. Thus, they have to now follow merger rule like other financial institutions. The merger of both the government-owned financial institutions is expected to create a stronger class 'A' bank which will also float shares like other financial institutions.
According to the Kiran Kumar Shrestha, CEO of the RBB, a merger committee comprising representatives from both the institutions will be formed to finalize the merger process. The merger committee will then form two teams to look into technical and managerial issues to execute the merger, Shrestha said, adding that the technical team will conduct valuation of assets of the two financial institutions and also appoint an independent auditor to conduct a due diligence audit (DDA). "It might take around six months to complete the merger process."
RBB has a paid-up capital of Rs 8.58 billion, while NIDC has a paid-up capital of Rs 415 million and a reserve and surplus of Rs 3.02 billion.
The merger of the two state-owned financial institutions has been discussed for long. In 2012, the Ministry of Finance wanted the two institutions to undergo merger. But NIDC was not happy with the idea. Then again, the government -- through the budget in the fiscal year 2013-14 -- tried to turn NIDC into an infrastructure development bank. But the plan failed to take off after the central bank advised the government that NIDC does not have financial and managerial capacity to become an infrastructure development bank.
Again, in the budget for the fiscal year 2015-16, the government announced merger of NIDC with Hydroelectricity Investment and Development Company Ltd (HIDCL). However, the plan again failed to materialize.