Kathmandu, November 28:

Not so very long ago, there were more temples than houses in Nepal. Times, however, have changed. Nepal is no longer just a country of temples, it’s a land where financial institutions are rapidly mushrooming. Nearly three dozen commercial banks, five dozen development banks, over six dozen finance companies and several hundred cooperatives are chugging ahead full steam. Currently, there are 160 licenced deposit-taking institutions and at least two dozen financial institutions including five A-class commercial banks are in the pipeline.

It’s a mystery how a small economy like Nepal’s which is largely dependent on imports, with little industrial base, is sustaining so many financial institutions. The mystery has spawned questions and doubts. “It is high time Nepal Rastra Bank (NRB), the regulatory authority authority of the financial market, analysed the impact of mushrooming financial institutions,” Radhesh Pant, president of Nepal Bankers’ Association (NBA), said adding that setting criteria was not enough.

There is so much money in the market that even the criterion of Rs 2 billion paid up capital cannot deter people from opening commercial banks. People’s Bank Nepal Ltd (proposed), with 898 promoters and Guru Prasad Neupane as its chairman, has a paid up capital of Rs 2 billion.

Mero Bank Ltd (proposed) — with authorised capital of Rs 4 billion and paid up capital of

Rs 2.45 billion — has 1,328 promoters. Century Commercial Bank (proposed) — with authorised capital of Rs 2.5 billion, paid up capital of Rs 2.23 billion (with promoters’ Rs 1.561 billion) — is waiting for the Letter of Intent (LoI) from NRB. It has 618 promoters including Dr Prafulla Kumar Kafle, former deputy governor, and Nirmal Pradhan.

“Opportunities are narrowing and the number of financial institutions is increasing. I wonder where will they invest,” Pant voiced concern. “If we are hit by a financial crisis, the government won’t be able to inject money to rescue them, like in the US.”

Kamal Gyawali, chief executive officer of Kist Merchant Banking and Finance Ltd that is ready

to be upgraded to A-class commercial bank argued that the central bank should make

licencing policy more stringent but once a financial institution gets licence it should be allowed free space to survive.

“However, NRB should not rescue sick financial institutions,”

he said adding that it should disseminate information of a bank’s financial health promptly to the people. “The central bank sits on all the data but people get to know only when a bank begins sinking,” he added. “People have the right to know the condition of their bank.”

With the increasing number of financial institutions, the central bank’s responsibility has also increased. According to NRB sources, it is taking stock of the situation. Some experts have even suggested stopping the granting of new licences until existing institutions are analysed. “Let’s have a risk-analysis and prepare short, medium and long term policies,” Pant added. The International Monetary Fund (IMF) also has warned that Nepal is over-banked. “The increase in the number of financial institutions has led to unhealthy competition,” it has said. Experts also say that as the size of the market pie is not increasing, the survival chance of some banks is slim.

Apart from new commercial banks seeking operating licence, existing two C-class finance companies, Kist Merchant Banking and Finance Ltd and Nepal Share Markets, are also ready to be upgraded, making it a total of 30 commercial banks.