Kathmandu, September 24

Nepal Rastra Bank (NRB), the banking sector regulator, has directed banks and financial institutions (BFIs) to make their recapitalisation plan public.

Issuing a directive today, NRB said recapitalisation plans will have to be posted on websites of BFIs so that the public is aware of how they are planning to meet the new minimum regulatory paid-up capital requirement.

Earlier, NRB had extended a September 17 deadline to all BFIs to submit their recapitalisation plans. Based on this directive, most of the BFIs have submitted their plans to NRB.

Unveiling the Monetary Policy 2015-16 on July 23, NRB had directed commercial banks to increase minimum paid-up capital from the existing Rs two billion to Rs eight billion within mid-July, 2017.

At that time NRB also said national-level development banks will have to raise minimum paid-up capital from

Rs 640 million to Rs 2.5 billion within that period. Meanwhile development banks operating in four to 10 districts and one to three districts, excluding those in Kathmandu Valley, need to jack up minimum paid-up capital from Rs 200-300 million and Rs 100-300 million, respectively, to Rs 1.2 billion and

Rs 500 million.

Likewise, national-level finance companies, including those operating in four to 10 districts, have been told to raise minimum paid-up capital from Rs 300 million to Rs 800 million, while finance companies operating in one to three districts, excluding those in Kathmandu Valley, need to increase paid-up capital from Rs 100-300 million to Rs 400 million within mid-July, 2017.

Most of the BFIs have said they would meet the new minimum paid-up capital requirement through mergers, and issuance of bonus and rights shares, according to NRB.

Although NRB has said the new capital structure would enhance shock absorbing capacity of BFIs and help them to consolidate their positions in the market, many bankers have been opposing the NRB’s recapitalisation plan from the day it was introduced.

Earlier, the issue was also taken to the parliamentary committee on finance, where Ichchha Raj Tamang, a parliamentarian representing CPN-UML and chairman of Civil Bank, called on NRB to revise its decision. His call was supported by Udaya Nepali Shrestha, chairman of Janata Bank, and Duman Thapa, director of Mega Bank, who are also lawmakers of CPN-UML.

The interventions made by lawmakers have raised the eyebrows of NRB and it fears similar conflicts of interest might arise in the future.

Following this, NRB has decided to ban parliamentarians from joining the board of directors of BFIs to avoid conflict of interest and minimise interference in regulatory works.