Instead, it has preferred to go for the divestment of its shares to induct strategic partner to turnaround their financial outlook.[break]
The clarity on the government´s decision evolved mainly after the Ministry of Finance started discussions over different options to recapitalize RBB and NBL that have been subjected to financial sector reforms.
“We are discussing on all available options to recapitalize and restructure RBB and NBL, as we committed in the budget for the current fiscal year. Clearly, they do not include the option of government investing further in the banks,” Finance Minister Surendra Pandey told Republica on Monday.
If Pandey stood firm on his stance and managed to make it government´s formal decision, it will make clear the future course of Financial Sector Reform Program (FSRP), which is ending next year.
Although the government´s end goal while starting the FSRP was to privatize the ailing banks, it´s lack of clear decision on future structure of the banks has been creating confusion among concerned stakeholders.
Particularly, it had hindered Nepal Rastra Bank from developing a concrete exit and restructuring action plan on NBL, the management of which has been taken over by the central bank.
“This will ease our work and facilitate us to work on other alternatives to restructure and exit from NBL,” said a central bank official.
Presently, RBB has negative net worth of Rs 9.5 billion and NBL too is in need of additional Rs 7.10 billion to do away with its negative net worth and comply with NRB´s capital adequacy provision.
“The government´s priority is development and it has no money to inject in the banks,” Pandey said.
Ministry of Finance is presently discussing on different options to recapitalize the ailing banks, and the options include divestment and induction of strategic partner, selling assets to generate required capital, and asking the banks to earn and fulfill the capital gap on their own.
However, given the legal complexities, capacity constraints and longer time required to turnaround negative net worth situation through annual income, Pandey said the government has limited scope of leaving the banks to decide their fate on their own.
“Practically, this leaves divestment and induction of strategic partner as the most practical option for the government,” he added.
In case of NBL, the government is also discussing the option of rights issue in limited proportion to existing shareholders and induct strategic partner, allowing it to take major chunk of the rights share.
The government has around 39 percent stake in NBL and rest is held by the private players, public and employees. On the other hand, it holds cent percent stake in RBB.
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