Kathmandu, February 8:

Acting Governor of Nepal Rastra Bank (NRB) Krishna Bahadur Manandhar today hinted that the central bank could take corrective measures anytime to prevent a bubble burst in the stock market.

Referring to the NRB’s month-old decision to temporarily stop margin lending on stock trading, Manandhar said it was a corrective measure taken for the protection of the rights of depositors as well as loans disbursed for stock trading. “The bubble was seen at the Nepal Stock Exchange (Nepse), which could burst anytime if corrective measures were not taken,” he said.

He was speaking at an inauguration of a half day long orientation programme for stockbrokers organised by the Securities Board of Nepal, today.

Manandhar further said that the central bank has already instructed public sector financial institutions to sell equity in the form of crossholdings they have held in any other commercial banks by the end of the current fiscal 2007-08. “This decision is intended to increase supply of shares in Nepse, which will ultimately help to correct the capital market,” he added. After the NRB’s directive Nepal Industrial Development Corporation (NIDC) have sell its equity from Nabil Bank, Rastriya Banijya Bank (RBB) from Nepal Investment Bank and Agricultural Development Bank Ltd from Nepal SBI Bank.

Manandhar said that the current supply crunch of shares could be minimised once promoters start trading their equity at the stock exchange. The central bank has already decided to allow the financial institutions, which have completed five years of operation, for trading of the promoters’ shares at the secondary market.

As per NRB’s decision on January 21, the promoters can hold up to 51 per cent shares and the remaining can be floated in the stock market. The previous provision had sealed the promoters’ equity at 70 per cent and only 30 per cent for the general public.

Dr Posh Raj Pandey, member of the National Planning Commission (NPC), said the capital market’s development and reforms have not been up to the mark despite being there for 15 years. “Our capital markets have failed to channelise scattered savings into productive investment,” he said. Dr Pandey said that a massive growth of capital market with Nepse index saoring up by 150 per cent and the ratio of total market capitalisation crossing 40 per cent of GDP is not supported by any fundamentals and the country’s economic growth trend. He warned that such an irrational growth could not only harm the capital market but the entire economy as well.

Rewat Bahadur Karki, general manager of Nepal Stock Exchange Ltd, said the process for appointing 27 new stockbrokers was in the final stage. Addition of new brokers would bring in more competition in the market, he said.

Sunanda Bahadur Shrestha, president of Nepal Investors’ Forum, asked the government and regulators to introduce measures to boost investors’ confidence in security trading. He suggested means for attracting institutional investors to invest in stock trading.