NRB issues circular on paid-up capital rules

Kathmandu, August 21

Banks and financial institutions that have failed to meet the paid-up capital requirement of the Nepal Rastra Bank (NRB) will be forced to merge or seek an acquirer.

Issuing a circular today, the central regulatory and monetary authority has said it will take action against the BFIs who have not abided by the central bank’s instruction and force them to either go for merger or be acquired by other financial institutions.

The central bank has said that it will take action after the final (external) audit report of the BFIs is published. As per the NRB circular, any BFI that has not met the paid-up capital requirement will be debarred from distributing cash bonus or bonus shares; collecting deposits; issuing loans and expanding its branch network. “The NRB will instruct such BFIs to go for merger or seek an acquirer,” reads the NRB circular.

Five class ‘A’ financial institutions may be affected by the directive. As per the unaudited financial results published by the commercial banks till last fiscal, net worth (reserve plus share capital) of five commercial banks, out of the 28 in operation, is below the required Rs eight billion.

The central bank had given two years’ time, which ended in mid-July this year, to the BFIs to raise their paid-up capital.

As per the NRB requirement, commercial banks need to meet revised paid-up capital requirement of Rs eight billion. The requirement for national-level development banks is Rs 2.5 billion, development banks working in four to 10 districts should have paid-up capital of Rs 1.2 billion, and development banks working in one to three districts should have such capital of Rs 500 million.

Similarly, national-level finance companies should have paid-up capital of Rs 800 million and finance companies working in one to three districts should have paid-up capital of Rs 400 million.