NRB moots 'forceful merger' provision

KATHMANDU, Feb 22: Nepal Rastra Bank (NRB) has pushed for a clause on ´forceful merger´ in the new regulation it has drafted, going by which it could force two or more banks and financial institutions to undergo merger if it deems appropriate.

In the draft of Merger and Acquisition Regulations, NRB has offered number of incentives in order to encourage voluntary merger and acquisition in the sector.

“It also has provision whereby the central bank can instruct certain banks and financial institutions to undergo merger,” Bhaskar Gyawali, spokesperson of the central bank, told Republica.

However, the central bank has clarified that the provision will be used mainly in cases of banks and financial institutions that have failed to comply with capital requirement and other prudential directives and in which it has started prompt corrective actions.

The provision has been mooted mainly to reclaim discretionary authority, whereby the central bank could force the weaker banks to consolidate their books of accounts. “This will give the central bank the option to take forceful steps to revive sick institutions, instead of liquidating them,” said Ashok Rana, president of Nepal Bankers´ Association.

The central bank on Monday held discussions on the draft regulations with a group of chief executives of banks and financial institutions. Along with Rana, the president of Nepal Development Bankers´ Association (NDBA) was also present on the occasion.

Among others, the central bank has promised relaxation on provisions related to capital adequacy ratio, deprived sector lending, single borrower´s limit, credit-deposit ratio for certain time to the BFIs opting to undergo merger and acquisition.

“These are important relaxations. We believe this will encourage promoters to take affirmative actions towards merger,” said Gyawali.

The central bank of late has laid special focus on merger and acquisition of BFIs. As per its request, the government has already announced waiver of capital gains tax (CGT) on transactions related to merger and acquisition for the BFIs. The facility was announced in the budget for the current fiscal year. Following the fiscal incentive, the central bank in the Monetary Policy for the current fiscal year had promised to come up with additional incentives to lure the BFIs promoters toward merger and acquisition.

The fresh regulation has been drafted as a part of that commitment, Gyawali added.

However, during the consultation, the bankers urged the central bank to commit additional incentives like waiver of tax liability and staff to be laid off, among others.
They also pushed for waiver of income tax for three years and cut in corporate tax from existing 30 percent to 25 percent.

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