Nepal | October 20, 2019

‘Forced merger’ of BFIs infeasible, says FinMin

Himalayan News Service

Kathmandu, September 17

At a time when Nepal Rastra Bank (NRB) had been hinting towards forced merger of banks and financial institutions (BFIs) after they failed to go for voluntary merger as encouraged in the Monetary Policy for fiscal year 2019-20, Finance Minister Yubaraj Khatiwada today said that forced merger is not feasible in the BFI sector in Nepal unlike in other countries.

Addressing the Nepal Banking Summit, which was organised by Nepal Bankers’ Association in the Capital today, Minister Khatiwada said that since the number of state-owned banks is quite high in India, it made sense for the Indian government to promote forced merger policy there.

“However, the situation is very different in Nepal and therefore, we can only encourage BFIs to go for merger and introduce related policies for the same,” said Khatiwada.

Through the budget for 2019-20 fiscal year, the government had encouraged BFIs to opt for merger and acquisition. The central bank has even introduced a number of incentive packages for banks that choose to go for merger through the Monetary Policy for the ongoing fiscal year.

Provided that banks merge and start a unified transaction by mid-July 2020, NRB had extended the deadline for such banks to float the required loans in the agriculture, energy and tourism sectors till mid-July 2021. Similarly, banks that go for merger have also been given up to mid-July 2021 to reach the 4.4 per cent spread rate provision.

Along with this, NRB has also said merged banks will not have to take its approval to expand their branches across the country while the cooling off period of six months for board of directors of merged banks and their chief executive officer and deputy CEOs will not be applicable.

However, as banks have not shown any interest in going for merger despite all these incentives, the NRB has recently been seeking commitment from the banks that they will go for merger in the future.

“While the government says forced merger is not feasible, NRB has been forcing banks to merge through different means. It clearly shows lack of coordination between government and NRB,” said a CEO of a commercial bank on condition of anonymity.

A version of this article appears in print on September 18, 2019 of The Himalayan Times.

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