NRB to allow mutual funds by BFIs

KATHMANDU, MAR 02 -

The Nepal Rastra Bank (NRB) is preparing to allow Banks and Financial Institutions (BFIs) to start mutual fund business although there is no explicit provision in the Bank and Financial Institution Act (BAFIA) regarding this.

Earlier, the central bank was hesitant to allow BFIs to open subsidiary companies to start the business in the absence of a clear provision in BAFIA. The central bank had turned down some banks’ request that they be allowed to change their article and memorandum of association to start the business.

“We will allow them as per the article 47 of BAFIA that has provisioned that banks can venture into other businesses as determined by the central bank,” said a senior NRB official. Nabil Bank, Kumari Bank, NMB Bank, DCBL Bank and few others have already applied to the central bank for approval to start the business. According to NMB officials, the bank has already conducted a feasibility study and documented minutes of its annual general meeting that endorsed the proposal of establishing a mutual fund. NMB’s feasibility study has confirmed the viability of the business.

Nabil’s AGM has also endorsed the proposal for setting up a mutual fund and it is in preparation stages.

The central bank will, however, put in place strict provisions for BFIs to start mutual fund business. Among the provisions currently under discussion are capital should be increased to Rs 2 billion by mid-July 2013; compliance of NRB directives; sound net worth status, consecutive profits for the last 4-5 years and low non-performing loan level. “Only the banks with sound financial health will be allowed to go for mutual fund business,” said the NRB official.

BFIs increasing their paid-up capital every year on a proportional basis to Rs 2 billion and those increasing their capital more than the required figure will be given priority while giving approval for mutual fund business,” said another NRB official.

Although development banks are also interested in opening asset (fund) management companies to manage mutual fund, the central bank is considering devising a strong provision that would mostly enable commercial banks to start this business. The mutual fund regulations seek to bar development banks and finance companies from entering into the business, as it has provisioned that only BFIs having paid-up capital of more than Rs 1 billion can open company to run mutual fund. However, few development banks already have paid-up capital of more than Rs 1 billion.

The regulations say prospective institutions should also have completed five years of operations, registered profit for the last three years and have paid-up capital not less than its net worth.

Securities Board of Nepal, the stock regulator, has been pushing for the last few years for mutual fund in a bid to widen the capital market and create additional investment opportunities for small investors.

The mutual fund regulations have also made it compulsory that a company going for an Initial Public Offering (IPO) should allocate at least 5 percent shares to mutual fund.

Posted on: 2011-03-02 08:46
http://www.ekantipur.com/2011/03/02/business/nrb-to-allow-mutual-funds-by-bfis/330344.html