NRB mulls action against five FIs

KATHMANDU, Dec 2: Nepal Rastra Bank (NRB) is preparing to ask five financial institutions -- a development bank and four finance companies -- to furnish their clarifications on why it should not scrap their operating licenses, as they have consistently failed to comply with its capital norms.

The central bank has decided to seek clarification from Mercantile Finance, Birgunj; Investa Finance, Birgunj; Multipurpose Finance, Rajbiraj; Hama Merchant Finance, Kathmandu; and United Development Bank, Bara.

"We are seeking clarification from these financial institutions within this week," said a central bank official. "If they failed to furnish justifiable reasons within the stipulated time, we can scrap their operating licenses," he told Republica.

The NRB is pledging 15 days to vulnerable institutions and 35 days to others for furnishing their clarifications. Of the five institutions, United Development Bank is in bad financial shape, while rest have defaulted the central bank´s capital compliance directives. These institutions are in operation for the last three to 10 years, but have not yet issued Initial Public Offering (IPO). They have also not raised the paid-up capital as stipulated by the central bank.

Going by the NRB directives, national level development bank should increase their paid-up capital to Rs 640 million. Regional level development banks undertaking merchant banking activities should increase their paid-up capital to Rs 300 million, while development bank operating in four to 10 districts and one to three districts need to raise their capital to Rs 200 million and Rs 100 million respectively.

Similarly, finance companies involved in merchant banking should increase their capital to Rs 300 million, while national-level and regional-level finance companies should increase their capital to Rs 200 million and Rs 100 million respectively.

The central bank has laid down a clear cut capital increment schedule for the financial institutions to comply with in the capital requirement directives.

BFIs are required to fulfill their capital requirement by the end of 2012/13, assuming 2007/08 as the base year.

However, these five financial institutions have failed to adhere to the schedule. The central bank had earlier banned them from mobilizing deposits, issuing loans and distributing dividend among the promoters.

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