NRB’s positive gesture towards banking sector growth

Published On: June 8, 2023 07:30 AM NPT By: Republica  | @RepublicaNepal

The recent announcement made by the Nepal Rastra Bank (NRB) regarding additional benefits for banks that carry out joint operations by mid-July is a positive gesture that should be embraced by all commercial banks operating in the country. This move by the central bank aims to facilitate big mergers of commercial banks and provide a conducive environment for their success. It is a step in the right direction to maximize efficiency and commercial viability in the banking sector. The NRB offers various advantages to merged entities that have initiated the merger process but have yet to commence joint operations. One of the key benefits is the extension of the loan issuance period in specific sectors by an additional year. This allows the merged banks to take their time and make informed decisions, ensuring the stability and viability of their loan portfolios. Additionally, the provision of an extra six months to fix the credit-deposit ratio is a practical approach by the NRB. This recognizes the challenges faced by banks during the merger process and provides them with sufficient time to align their financial ratios. It promotes a smooth transition and minimizes any disruptions that may arise from sudden changes in the ratio.

The NRB's decision to reduce the cooling period for high-ranking officers of unified banks is equally commendable. By shortening the time frame for these officers to join other banks and financial institutions after leaving their current positions, the NRB promotes flexibility and talent mobility within the banking sector. This will encourage competent professionals to actively participate in the consolidation process, leveraging their expertise for the benefit of the merged entity. Moreover, the NRB's offer to grant a one-year period for adjusting the interbank interest rate addresses potential concerns regarding interest rate fluctuations. This flexibility allows merged banks to adapt to market conditions without compromising their stability. Furthermore, the provision of an additional margin of five percentage points on the limit of deposit collection enhances the merged entities' capacity to attract deposits and meet the financial needs of their customers. The amended unified directive also streamlines the process for merging branch offices operating within one kilometer of distance. Removing the requirement for prior approval from the central bank for such mergers simplifies administrative procedures and expedites the consolidation process. This streamlined approach encourages banks to optimize their operations, reduce redundancies, and enhance their overall efficiency.

It is worth noting that the NRB has been proactive in promoting mergers and acquisitions in the banking sector since the fiscal year 2016/17. The number of commercial banks has significantly decreased, demonstrating the success of this initiative in fostering consolidation. The current number of 21 commercial banks reflects a healthier and more robust banking sector that is better equipped to meet the evolving needs of the economy. As a newspaper, we see the NRB's announcement of additional benefits for banks carrying out joint operations by mid-July as a positive and forward-thinking move. It provides a conducive environment for big mergers of commercial banks and encourages efficiency and commercial viability of the banking sector. The provisions outlined by the NRB address various challenges faced by merged entities and offer them the necessary flexibility and support to succeed. It is an opportunity that all banks should seize to further strengthen the financial system and contribute to the overall economic growth of Nepal.

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