Nepal Rastra Bank (NRB) is ready to unveil financial policy for the fiscal year 2019/20 on July 12. Presently, it is hectic collecting instructions from the stakeholders from across the nation on the upcoming policy.
There have been beliefs that the provisions in the forthcoming monetary policy are likely to force industrial banks to undergo a merger method. Previously, Governor Dr. Chiranjibi Nepal had kept a meeting with bankers at a high-end hotel and instructed them to furnish a list of those banks deciding merger within 15 days. Janata Bank, as well as Global IME, get agreed to go through a merger method based on the direction. Other 7 banks also have submitted a Letter of Intent (LOI) for a merger. However, it is not even certain whether the much-talked huge merger plan is going to really happen.
Is a huge merger needed?
In the fiscal year 2015/16, NRB had begun a merger and addition process citing that they can lack enough capital base as a mandatory keep.
The NRB, in the financial policy, released an obligatory provision making it necessary for commercial banking to get at least Rs 8 million as paid up capital. This financial policy had courted controversies after that.
Consistent with the NRB’s policies, industrial banks underwent the merger and granted rights shares, due to which nearly all the commercial banks have able to have paid up capital fixed by the central bank.
Is the huge merger truly achievable?
The merger among industrial banks is very simple said than completed. The malfunction of a merger between Janata Bank and Machhapuchchhre financial institution is an example which shows how complicated is the process and challenges underlying it.
Likewise, the merger between Hamro Development Bank and Jyoti Development Bank additionally could not occur after the specific general meeting of the past did not authorize the merger offer.
Specialists warn of a potential monopoly
Specialists are of the opinion that the NRB needs to be well aware of the feasible impacts (that) the decrease in the variety of commercial banks would have on the everyone in general to industrialists specifically. Currently, there can be 28 commercial banks operating in the nation.
Economist Dr. Chandramani Adhikari declared, “Homework and a good deal of study are required prior to select a big merger. But, it should not foster focusing power as an adverse impact on the banking method and gag healthful competition in the economic sector as a consequence.”
“When the variety of banks drops, you will have fewer competitors among banks and those who are ready to invest in the banking sector and gross amounts of loans taken from industrial banks may also go down,” said former governor Dr. Tikal Rawal, echoing Adhikari’s sights.
Rawal went on to state, “Earlier banks’ interest rate had achieved 13 to 14 percent. But in the present fiscal year, it is available at only 8 percent. Industrialists, business people, and farmers are getting that loan at a subsidized rate due to competitors among the banks.
Banking institutions may exercise a monopoly on banking activities as you will have a few banks going for a merger. The big merger might have positive sides, too. It will solve the existing liquidity issue in the country and can are able to attract a huge amount of investment for a project, say experts.