Haste is harmful

Decreasing the number of BIFs is not a virtue in itself, but how the process will impact the financial sector will be a main factor

Banks and financial institutions (BIFs) are now required to raise the minimum paid-up capital four-fold. But they have to do it within two years. This provision is part of the new Monetary Policy for 2015-16 unveiled by Nepal Rastra Bank Governor Chiranjibi Nepal on Thursday. Accordingly, commercial banks will have to increase their minimum paid-up capital from the existing two billion rupees to eight billion rupees. Similarly, development banks and finance companies will have to increase their minimum paid-up capital four-fold. This has drawn flak not because increasing the minimum-paid-up capital is wrong but because the given time-frame has been widely regarded as too short for the BIFs to carry out the NRB directive. This monetary policy provision should be taken as the central bank’s indrect directive to go in for mergers, a process which has been going on for the past several years. Several banks and financial institutitons have already merged. The number of commerical banks stands at 30 at present, and the number of development banks outstrips this number by far, and the financial companies are even more numerous. Even mergers cannot be effected overnight, the process would take quite some time, starting from the meeting of minds of two or more banks or financial institutions on merging. Forced or hasty mergers would only lead to problems in the finacial sector, with harmful consequences for the economy.

The bankers for the most part are in a quandary for they would face a difficult task in mobilizing huge amounts of money to raise their capital as required. Mergers would not expand the total capital base of the BIFs in the financial sector, because two or more institutions would just be pooling together their resources. The real positive impact on the financial sector and the economy as a whole would be felt if the BIFs could general new capital. Is it possible within the given time? In the meantime, the demand for the shares of commercial banks, development banks and the majority of financial companies has risen after the NRB directive, sending the Nepse index upward. This trend is expected to continue for some time because the banks and financial institutions will be compelled to float the bonus and rights shares if they intend to broaden the capital base.

But the bonus shares can only be provided on the profits made by the listed companies. Therefore, bonus shares alone will not be adequate to raise the capital base four-fold within two years. Another way to raise the paid-up capital would be the issuance of rights share, but we cannot count on it because the investors would have to make large investments. It is doubtful that this can be achieved given that the equity of commercial banks has dipped below the 20 per cent mark at present. Decreasing the number of BIFs is not a virtue in itself, but how the process will impact the financial sector will be a main factor. The central bank does not seem to have paid enough attention to the practicality of this time requirement.

Illegal act

It is shocking to hear that cases of violence against women are settled at local level violating the law of the land. Hardly few cases of violence against women are lodged at the law-enforcing bodies as most of the victims are compelled to reconcile with the perpetrators under a financial deal. Reports from the remote hilly district of Bajura suggest that three women who were raped or sexually abused were forced to accept a financial deal to cover up the crime. Village leaders and rights activists are said to have made the rapists pay money to the victims as compensation.

Violence against women cannot be settled at local level by making the perpetrators pay the money to the victims. It is a tactic to hush up the crime in the name of reconciliation. The local leaders and right activists have done injustice to the victims.

The more such cases are covered up the more cases of violence against women/girls continue to rise. It is the victims who have to bear the brunt of sexual abuse or rape throughout their life. Settling the cases of sexual violence outside the court is illegal. Therefore, a massive awareness campaign must be launched on the issue.