Banks on brink to meet minimum paid-up capital requirement

KTAHMANDU, APR 11 -

Five commercial banks, which are required to increase their paid-up capital to Rs 2 billion by mid-April, are facing difficulties to do so due to low investors’ confidence as a result of plummeting share market and compulsion of disclosing income source.

The banks—Citizens Bank International, Sunrise Bank, Bank of Asia, DCBL Bank and NMB Bank—and Prime Commercial Bank were awarded license after they committed to increase their paid-up capital to Rs 2 billion by-Mid July 2010. The central bank later extended the deadline until Mid-April 2011.

Prime, however, has already increased its capital to the required level.

As per the new licensing policy-2007, a proposed bank should meet the minimum paid-up capital requirement of Rs 2 billion to get operating licence, but these banks were exempted from the provision, as they had already received letters of intent before the introduction of the new policy.

Older banks, however, can increase their capital to the required level by Mid-July 2013, as per the licensing policy.

Given the tumbling share market, promoters themselves are not interested in investing. “As the price of ordinary shares came down to around Rs 100 per unit, there is no environment for promoters to make additional investment,” said Suresh Kumar Basnet, director of Sunrise Bank. The price of promoter shares is usually less than that of public shares.“The proposed amendment to the proposed Bank and Financial Institution Act (BAFIA) has also discouraged promoters,” said Basnet. The proposed amendment seeks to limit a single promoter’s holding in a bank to 5 percent from the current 15 percent.

Although the banks are geared up to increase their capital, bankers say the decline in the purchase of rights shares is creating problem. Citizens has initiated auction of its rights shares which were not purchased. “As only Rs 80 million worth of rights shares were not subscribed, we can sell them easily,” said Rajan Singh Bhandari, chief executive officer of Citizens Bank.

Bank of Asia started the process of issuing rights shares last week. It requires Rs 500 million to meet the minimum paid-up capital requirement. “We hope people will subscribe rights shares after promoters put in money,” said Bank of Asia CEO Parsuram Kunwar Chhetri. DCBL is gearing up for a follow-on public offering. “We are waiting for the final decision from the Securities Board of Nepal,” said DCBL CEO Sudhir Khatri.

According Khatri, his bank’s 75 percent shares have already been underwritten.

The underwriter buys shares if not sold to the public.

NMB is also preparing to issue rights shares. “We have already applied at SEBON for the purpose,” said NMB CEO Upendra Poudel.

With banks gearing up for increasing their paid-up capital, whether the central bank will give them an extra time for the purpose is uncertain. “We don’t think we will extend the deadline for the second time,” said a senior NRB official. “We encourage these banks to go for merger.”


Banks Paid-up capital

Citizens 1.92billion

NMB 1.65billion

Sunrise 1.62billion

DCBL 1.92billion

Bank of Asia 1.50 billion




Posted on: 2011-04-11 09:10,http://www.ekantipur.com/2011/04/11/business/banks-on-brink-to-meet-minimum-paid-up-capital-requirement/332319.html