Kathmandu, April 26:
Nepal Rastra Bank (NRB) is set to bring in a new Bank and Financial Institution Act with a view to facilitate mergers and acquisitions amongst financial institutions.
In the wake of opening up of Nepalâ€™s financial sector as per the obligations made to the WTO, NRB is introducing a new umbrella act governing commercial and development banks as well as finance companies, said Krishna Bahadur Manandhar, acting governor at NRB. He was speaking at a programme organised by Independent Business News Pvt Ltd to ma-rk its 14th anniversary on Thursday. â€œThe new legislation could co-me soon,â€ he informed, adding th-at Nepalâ€™s commitment to Poverty Reduction Growth Facility (PRGF) also requires to bring in a new law.
Referring to the existing legislation, Manandhar said that the process and legal framework for mergers and acquisitions or amalgamation of financial institutions are not clearly spelled out right now. â€œThe forthcoming law will address the current problem and pave the path for a smooth process for mergers and acquisitions,â€ he added. After enactment of the new law, merger of smaller and weaker institutions or acquisition of them by bigger and stronger institutions could take place smoothly, he said. Manandhar admitted that the central bankâ€™s recent decision to double paid-up capital requirement for financial institutions is also a part of this effort. He said that financial institutions failing to meet the deadline to raise their capital would not be excused. â€œAll these provisions are being made for their own sake to make financial institutions vibrant and strong, when Ne-pal opens up for all in 2010.â€
Earlier, P R Somasundaram, head, strategic initiative for South Asia region of Standard Chartered Bank Ltd made a presentation on â€˜Mergers and Acquisition in Financial Services in South Asia: A Perspectiveâ€™. He said that the emergence of WTO and rapid globalisation have changed the business landscape globally, which is resulting in new opportunities as well as challenges. In the financial sector, more and more big banks are being born every year as a result of mergers and acquisitions, he said, adding that this trend has led the market to become more predictable, transparent, technologically advanced and highly competitive. â€œAt the end, people are benefiting from it,â€ he said.
Stating that mergers and acquisitions in South Asia hold a huge potential, he added that it is an equally challenging task despite having favourable macroeconomic factors. South Asiaâ€™s high GDP growth rate, good balance between growth and inflation, healthy savings and improving FDI flows are some of the positive macroeconomic factors.
Maha Prasad Adhikari, executive director at NRB, made a presentation on Nepalâ€™s experience in mer-gers and acquisitions, while Gandhi Pandit, corporate lawyer made a presentation on legal aspects.