Nepal Rastra Bank (NRB) has introduced Acquisition Bylaw including a provision of forceful acquisition in the event that the central bank finds it necessary.
Commercial banks, development banks and finance companies can acquire any banks and financial institutions (BFIs), while ‘D’ class FIs (micro-finance institutions, non-government organisations and cooperatives) can acquire other ‘D’ class FIs only, according to the bylaw introduced on Sunday.
Under the forceful acquisition provision, NRB has put forth certain conditions. If a single group has promoted more than none BFIs, the central bank may force them to be acquired by other BFIs.
BFIs failing to lower non-performing loans below 5 percent for three consecutive years, those facing prompt corrective action for at least three times, and those failing to pay liabilities may also be subject to forceful acquisition.
The central bank may also force BFIs to be acquired if they fail to raise paid-up capital to the required level, issue public shares timely and if the issued shares are not subscribed.
Other circumstances that may prompt NRB to force BFIs to be acquired are deteriorating corporate governance due to tussles among board directors, and when interests of depositors, shareholders and service seekers are hampered.
NRB Spokesperson Bhaskarm-ani Gnawali said the provision of forceful acquisition was put in place considering increasing incidents to which only a forceful acquisition would be an answer.
“For example, if a financial institution is on the brink of failure and may have to be liquidated, its acquisition by a powerful institution might be an alternative mechanism,” he said. “The central bank generally does not want a forced acquisition, but it may be forced to take such a measure under certain conditions.”
The central bank said the bylaw was introduced to create an environment where institutions with big net worth could acquire institutions with low net worth and those in trouble. But after an acquisition, the capital adequacy ratio of the acquiring BFI has to meet the NRB requirement.
Remaining
Commercial banks, development banks and finance companies can acquire any banks and financial institutions (BFIs), while ‘D’ class FIs (micro-finance institutions, non-government organisations and cooperatives) can acquire other ‘D’ class FIs only, according to the bylaw introduced on Sunday.
Under the forceful acquisition provision, NRB has put forth certain conditions. If a single group has promoted more than none BFIs, the central bank may force them to be acquired by other BFIs.
BFIs failing to lower non-performing loans below 5 percent for three consecutive years, those facing prompt corrective action for at least three times, and those failing to pay liabilities may also be subject to forceful acquisition.
The central bank may also force BFIs to be acquired if they fail to raise paid-up capital to the required level, issue public shares timely and if the issued shares are not subscribed.
Other circumstances that may prompt NRB to force BFIs to be acquired are deteriorating corporate governance due to tussles among board directors, and when interests of depositors, shareholders and service seekers are hampered.
NRB Spokesperson Bhaskarm-ani Gnawali said the provision of forceful acquisition was put in place considering increasing incidents to which only a forceful acquisition would be an answer.
“For example, if a financial institution is on the brink of failure and may have to be liquidated, its acquisition by a powerful institution might be an alternative mechanism,” he said. “The central bank generally does not want a forced acquisition, but it may be forced to take such a measure under certain conditions.”
The central bank said the bylaw was introduced to create an environment where institutions with big net worth could acquire institutions with low net worth and those in trouble. But after an acquisition, the capital adequacy ratio of the acquiring BFI has to meet the NRB requirement.
Remaining
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