NRB to act strict against BFIs leaving merger midway

Published On: September 9, 2016 03:30 AM NPT By: Sagar Ghimire  | @sagarghi

KATHMANDU, Sept 9: Alarmed by the rising cases of merger and acquisition (M&A) process of bank and financial institutions (BFIs) collapsing midway, Nepal Rastra Bank (NRB) has introduced new measures of taking action against such BFIs or their directors if they do not implement merger or acquisition plan within a stipulated timeframe. 

Releasing a new BFIs Merger and Acquisition Bylaws 2073 on Thursday, the NRB said that it may take action against those BFIs, who scrap merger or acquisition merger process after getting the letter of intent or the final approval of the central bank. 

The new bylaw, which came into effect after it was approved by the central bank's board of directors meeting held on September 3, has replaced the two separate bylaws about merger and acquisition of the BFIs. 

According to the new bylaw, the central bank may take action against the officials of the respective BFIs as per NRB Act 2058 and disqualify shareholders (having more than 5 percent stakes) from becoming board directors. Similarly, the other actions that the central bank may take are barring such BFIs from going into M&A for a certain period, prohibiting them from opening branch offices for three years or/and block them from getting any facilities from the central bank. 

    BFIs declared troubled by NRB will only be eligible for 
    an acquisition process-

  • BFIs will have to choose between undergoing either a merger process or an acquisition at a time     
  • SWAP ratio not to be allowed to be more than 100   
  • Staff’s pay and perks cannot be reduced post-M&A 
  • Blocked share-trading may be lifted after applying for final approval
  • Additional benefits for BFIs acquiring troubled institutions
  • Factors for calculating swap ratio: net worth, business valuation and  market        capitalization  
  • Goodwill of a company to not be allowed to be counted for valuation

"We have seen a new trend seen in merger and acquisition where some board directors play to block the M&A during the annual general meeting of the BFIs by spreading wrong information and encouraging to reject the M&A proposal through majority voting," an official of the NRB told Republica.  "While cancelling the letter of intent or final approval for the merger, the NRB will keep vigil on such shareholders about their intention and harm that they make from blocking the merger," he added. 

Nearly a dozen BFIs have scrapped their M&A process after getting the letter of intent or final approval from the NRB.

"It's a different case if merger or acquisition is cancelled because of genuine reason. But, going back from the process does more harm than good. The new measures aim to discourage such practices and deter shareholders from playing such roles," the official added. 

The new bylaw has also laid down a measure that allows the central bank to direct a BFI to pursue merger or acquisition in some conditions. 

The new bylaws also allows the central bank to play a role of mediator if there is any disputes between BFIs while undergoing M&A. 

According to new bylaws, BFIs, which have got the letter of intent from the central bank, can go ahead with the M&A even if any of them pull out from the process. 

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