Officials working out incentives on top of budget-pledged tax waiver on merger-related transactions said that the central bank will relax its provision related to branches network as well to encourage mergers.[break]
“If there is a mega merger involving multiple BFIs of same or different categories, we will pledge them additional time to fulfil the capital requirement,” a source told Republica. “However, the parties undergoing merger will need to submit their clear plan on how and by when they will be able to meet the capital requirement.”
Going by the existing rule, the commercial banks need to raise their paid up capital to Rs 2 billion, national level development banks need to increase it to Rs 640 million and national-level finance companies Rs 200 million within 2012/13.
Likewise, regional-level development banks need to increase their capital to Rs 300 million, development banks working in 4-10 districts need to raise it to Rs 200 million and 1-3 district need to raise it to Rs 100 million. Finance companies engaged in merchant banking need to raise their paid-up capital to Rs 300 million, while those operating at regional level need to increase the capital to Rs 100 million.
However, following the slowdown in realty transactions and depression in stock market, mainly national level finance companies and development banks operating at different levels have been facing problems in injecting additional capital.
Reeling under the problem, Investa Finance based in Birgunj has already requested the central bank to relegate its status and allow it to function as regional-level finance company. Along with it, six other finance companies are already facing restriction to mobilize deposits after failing to comply with central bank´s directives on capital.
Two development banks -- Bageshwari of Nepalgunj and Shangri-la of Pokhara that were planning merger -- have requested for additional time to raise the capital to the stipulated level after their existing sources proved inadequate.
“These are merely a couple among known cases. The number of unknown cases is much higher. Hence, we believe if we relaxed the capital compliance provision, we can encourage numerous players in the market to undergo merger,” said the source.
Apart from that, the central bank is also relaxing its existing non-performing assets (NPA) criteria on branches network to facilitate merger.
Currently, BFIs need to have NPA of less than 5 percent of their total loans portfolio to expand a new branch. “We might relax it to 6 percent for BFIs undergoing merger, so that they do not face problems in holding their branch network,” said the source.
NRB Governor Dr Yuva Raj Khatiwada said that the central bank could also unveil fast-track procedures to step up and facilitate mergers of larger institutions.
“We can also welcome upgrading of institutions if multiple players formally approach us with merger proposals,” he stated.
The central bank has said that it will formulate a comprehensive directive incorporating all incentives to drive the market.
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