A decision in this regard was taken by a meeting of the high-level financial coordination committee held on Thursday, a press statement issued by press secretary of Finance Minister Barsha Man Pun said.[break]
The meeting, held under the chairmanship of Minister Pun, has recommended immediate formation of a merger committee in coordination with Nepal Rastra Bank, the banking sector regulator, to kick start the merger process. The Ministry of Finance has already informed the central bank about this decision.
The meeting also called on the management of both the banks to immediately call special general meeting and formally get approval for the merger.
“The entire process should be wrapped up within next six months,” the meeting said, expressing hope, this will “set an example for the banking sector and encourage others banks and financial institutions to go for consolidation.”
Lately, many domestic banks and financial institutions have been going for merger to replenish their capital and strengthen their position in the market.
Recently, Rastriya Banijya Bank had also identified merger with NIDC as one of the measures to boost its capital.
RBB, the largest commercial bank in terms of assets, had recently received a capital injection of Rs 4.32 billion from the government, boosting its paid-up capital to Rs 5.49 billion. With the upcoming merger with NIDC, which has a paid-up capital of Rs 415.82 million, RBB will have a capital base of Rs 5.91 billion.
In addition to this, RBB is also raising Rs 3.36 billion by liquidating special drawing rights (SDR) provided by the World Bank and irredeemable preference shares to further replenish its capital.
These measures are expected to inject new lease of life into the banking institution with a negative net worth of over Rs 2.5 billion.
The bank, which once used to be one of the profitable financial institutions in the country, had started generating losses after various sector started exerting pressure on it to give away loans without adequate guarantee. And by early 2002 it had accumulated non-performing loans of over 60 percent.
The financial condition of the bank has been improving ever since a professional management team started overseeing it in January 2003, under the financial sector reform program, with the level of non-performing loan falling down to 7.27 percent by the end of last fiscal year ended July 15.
Related story
Cabinet okays RBB, NIDC merger proposal
