‘Problematic’ FIs to get more time to raise paid-up capital

Kathmandu, July 24

Financial institutions that had been termed ‘problematic’ and have resumed operation after Nepal Rastra Bank (NRB)’s resolution will get more time to meet the paid-up capital requirement.

As the Monetary Policy 2017-18 has announced to provide preferential treatment to the financial institutions that have resumed operation after being termed ‘problematic’ earlier, the central bank has started the homework to set the deadline of paid-up capital increase for such financial institutions.

Narayan Prasad Paudel, executive director and spokesperson for the NRB, said that the central bank will set the deadline for paid-up capital hike for such financial institution by mid-August this year. They will be provided no less than a year to increase their paid-up capital as per requirement of NRB.

Two financial institutions that had been termed problematic earlier are now in operation. According to NRB, out of 16 problematic financial institutions, seven are in the process of resolution and two have already resumed operation, namely, General Finance and Arun Finance.

Arun Finance Ltd, which came into operation after NRB’s resolution has already initiated the process to increase its paid-up capital from Rs 150 million to Rs 800 million through capital injection from its promoters and rights issue.

NRB has facilitated in the ownership transfer of problematic financial institutions to bring them into operation. Financial institutions under resolution process of NRB — namely, Capital Merchant Banking and Finance Ltd, Kuber Merchant Finance Ltd, World Merchant Banking and Finance Ltd, Nepal Finance Ltd, Lalitpur Finance Ltd, and Corporate Development Bank Ltd — have already signed memorandums of understanding to transfer ownership.

Those financial institutions that come into operation after completing the resolution process would also have to follow the same deadline, according to Paudel.

Financial institutions that had earlier been termed as problematic by NRB were mainly development banks and finance companies.

NRB has set paid-up capital requirement for the national-level development banks at Rs 2.5 billion. The requirement for development banks working in four to 10 districts is set at at Rs 1.2 billion, and development banks working in one to three districts at Rs 500 million.

Likewise, paid-up capital requirement for national level finance companies has been set at Rs 800 million and for finance companies working in one to three districts at Rs 400 million.

The central bank had given deadline of fiscal year-end of 2016-17 for banks and financial institutions to meet the paid-up capital requirement.