KATHMANDU, AUG 12 - 2013
Banks and financial institutions (BFIs) have to fulfill the paid-up capital requirement through accumulation of the fund paid by the shareholders within a year.
While extending the deadline for fulfilling the paid-up capital requirement by one year after it expired at the end last fiscal year, the central bank on Sunday issued a new circular announcing the scrapping of the existing provision of the fulfilling the paid-up capital through reserves. The unified directive 2013 has made the provision that the BFIs could increase their paid-up capital requirement with 80 percent paid-up and 20 percent reserves.
With the new provision, the BFIs failing to meet cent percent paid-up capital should either issue rights shares or bonus shares or go for merger.
As of the last fiscal year, eight commercial bank s and several development bank s and finance companies have not fulfilled the paid-up capital in cent percent paid-up version.
Although the commercial bank s have been fulfilling the requirement through reserves, development bank s and finance companies are struggling to fulfill the requirement even through reserve. “The move was taken to encourage the BFIs to go for merger,” said a senior NRB official. “In the current circumstances, the BFIs will prefer merger instead of issuing rights and bonus shares.”
The official said that it would also affect the share market with investors willing to invest on the shares of particular commercial bank s with hope that they could issue rights or bonus shares.
Under the current licensing policy, the commercial bank s are required to maintain a paid-up capital of Rs 2 billion, while national-level development bank s have to maintain it at Rs 640 million. For the development bank s with the operational license in 4-10 districts will require Rs 200 million, and those authorised to operation in 1-3 districts need Rs 100 million.
As far as the finance companies are concerned, national-level finance companies have to maintain a paid-up capital of Rs 200 million, while such companies with license to operate in 1-3 districts should maintain a paid-capital at Rs 100 million. The central bank has asked BFIs to submit their capital plans within mid-October.
A former NRB official said that the central bank ’s move appeared to be guided by not allowing the BFIs to distribute cash dividends at a time a majority of bank s have been
announcing huge rise in profits. “It is also the principle of Basel guidelines that the capital should be strengthened whenever the bank s log good profits,” he said.
Pari-passu agreement must for multiple bank ing
Banks and financial institutions (BFIs) will have to sign a pari-passu agreement before providing or renewing working capital loans such as overdraft, cash credit, demand loan, trust receipt loan and short-term loans exceeding Rs 10 million to the same borrower.
Pari-passu agreement ensures proportional rights on collateral put by the borrower among the financing BFIs based on the size of loans.
This is the first time that Nepal Rastra Bank (NRB) has made a provision on pari-passu amid demands from the BFIs to control increased multiple lending that has exposed them to more risks. While signing such agreement, concerned parties should disclose size of loans, details about collateral and shares of each lender on the collateral, states a new circular issued by the central bank . “Provided such loans are not recovered, concerned BFIs will have to recover the loans from collateral based on para-passu agreement,” it added. An NRB official said that the move was taken to ensure that the BFIs will be aware of risks associated with the loans while extending them to certain borrowers.
Until now, a BFI providing first loan to the borrower will have the first right on the collateral in the event of loan default, while other BFIs will have consecutive rights on the collateral.
The BFIs involved should determine the maximum limit of loans based on the stocks of goods and receivables (goods sold and payment remaining) of the borrower. The BFIs have to get details of stocks and receivables at least every three months from the loanee.
In case of loans below Rs 10 million, the BFIs can lend upon receiving ‘No Objection Letter issued by previous lenders.
Source: The Kathmandu Post
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