Kathmandu, December 25

Himalayan Bank Ltd (HBL) will now have to ensure that its board directors representing institutional shareholders are elected on the basis of proportion of shares they hold in the financial institution.

Nepal Rastra Bank (NRB), the central bank and the banking sector regulator, has given 30 days’ time to the bank to make this change.

NRB has issued a directive saying the bank should hold election of board directors within 30 days so that institutional shareholders, who hold largest number of shares, can send their representatives to the board.

This directive, seen by The Himalayan Times, was issued by NRB’s Bank Supervision Department on Monday.

The latest central bank decision is expected to pave the way for a representative of Mutual Trading to enter the boardroom, as it is fourth largest institutional shareholder in the bank with 11.85 per cent stake.

Mutual Trading is solely owned by Prem Lata Khetan, wife of late Mohan Gopal Khetan and mother of Rajendra and CP (Chandra Prakash) Khetan. PP (Prem Prakash) Khetan — son of late Hari Gopal Khetan, who is brother of late Mohan Gopal Khetan — used to represent Mutual Trading in the bank’s board till 2012. He stepped down that year following differences with other board members, according to sources.

Mutual Trading had made an attempt to resend its representative to HBL’s board few years ago, but its request was denied by Board Chairman Manoj Bahadur Shrestha, sources said. The firm then moved the Patan High Court in November 2017 accusing HBL’s chairman and CEO of preventing it from sending a representative to the boardroom. The court, in its first verdict, told the firm to wait until existing board directors completed their four-year term this fiscal year. The firm has since appealed to the court to review its decision, but no verdict has been issued so far.

The Banks and Financial Institutions Act and a central bank directive clearly say board members, who represent institutional shareholders, should be elected in proportion to shares held by investors. If this provision is enforced in line with the latest central bank directive, the representative of Chhaya International will have to exit the boardroom.

Himalayan Bank has six major institutional shareholders, with Habib Bank of Pakistan holding 20 per cent stake, followed by Employees Provident Fund (14 per cent), N Trading (12.71 per cent), Mutual Trading (11.85 per cent), Ava International (11.38 per cent) and Chhaya International (8.89 per cent). Except for Mutual Trading, all other institutional shareholders have sent their representatives to the bank’s board.

It is impossible to make room for representatives of all six major institutional shareholders of the bank in the board because of a provision in the Banks and Financial Institutions Act enforced in 2017. This law allows banks to have up to seven members in the board, including the chairman, but two seats must be reserved for an independent director and a director who represents public shareholders.

This means institutional shareholders can only send a maximum of five persons to the board.

This provision, coupled with the latest NRB instruction, means Chhaya International, which has the lowest number of shares among six major institutional shareholders must quit the board. Chhaya International is represented by Prachanda B Shrestha in the board. Prachanda did not receive THT’s call and neither did he respond to a text message.

Prachanda, and Manoj, the chairman of Himalayan Bank since 2004, are siblings.

Multiple sources told THT that both the brothers have tightened their grip on the bank over the years, which, they said, have not always produced good results.

“We are about to lose an opportunity to bring in a new foreign investor in the bank because of the delay made by the chairman in making disclosures as requested by the foreign group,” a source said referring to the interest shown by CDC Group, a development finance institution owned by the UK government, to purchase 20 per cent stake of Habib Bank in the Himalayan Bank. Habib has already made the decision to offload its stake in the bank. “But we are not sure whether we can rope in CDC because of the chairman’s imprudence. This has raised the eyebrows of top central bank officials as well.”

Many are now viewing the central bank’s latest directive as a move to break the stronghold of Shrestha brothers in the bank’s board.

“We want banks to bring in reputed foreign investors so that there is healthy competition in the market and transfer of knowledge and skills, which will benefit the entire economy,” a central bank official told THT on condition of anonymity.