Nepal | May 26, 2019

Seven-year-old BFIs may convert all promoter shares into ordinary stocks

Himalayan News Service

Kathmandu, May 24

Banks and financial institutions (BFIs) that have completed seven years of operation will soon be able to convert all promoter shares into ordinary shares if the Bank and Financial Institution Bill forwarded to Parliament is signed into law.

Earlier, the Bill had proposed a timeline of 10 years to convert promoter shares into ordinary shares.

But a subcommittee formed under the Parliamentary Committee on Finance has reduced the period to seven years. The seven-member subcommittee has already submitted a report on it to the Finance Committee.

If the subcommittee’s recommendation is approved by the committee led by Prakash Jwala, lawmakers are likely to endorse the Bill without making any objection.

As per the Bill, all the promoter shares can be offloaded and converted into ordinary shares only if the move does not affect the capital market, the banking sector and the entire financial sector. But Nepal Rastra Bank (NRB)’s prior approval is required to convert promoter shares into ordinary shares.

Currently, NRB has made it mandatory for promoters of BFIs to hold at least 51 per cent of the shares. Another 30 per cent of the equities must be converted into ordinary shares, and there is an option to convert additional 19 per cent of promoter shares into ordinary shares.

The new provision means BFIs that have completed seven years of operation may conduct business without roping in promoters.

Also, the subcommittee has recommended that board of directors be allowed to serve their organisations for two terms of five years each. Earlier, the Bill had proposed electing board directors for a maximum of two terms of four years each. However, independent directors will not be able to serve the institution for more than a term.

Similarly, the subcommittee has also proposed to raise the tenure of CEO of BFIs to five years and let the chief executive serve the same institution for at least two terms. Earlier, the Bill had limited CEO’s tenure to four years.

But the subcommittee has proposed to bar officials of the banking sector regulatory body, who have not completed two years of retirement, from assuming the post of CEO at BFIs.

Also, the subcommittee has recommended that the Bill include a provision to enable BFIs to sell shares that have remained undersubscribed during initial public offerings to any firm, company or organisation.


A version of this article appears in print on May 25, 2016 of The Himalayan Times.


Follow The Himalayan Times on Twitter and Facebook

Recommended Stories: