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Central bank asks banks and financial institutions to lower investments in stocks

The central bank today directed banks and financial institutions reduce their investments in stocks by mid-July.

The central bank ordered them to bring their investment on stocks down to a maximum of one per cent only of their core capital by the end of the current fiscal year.

However one per cent will also be billions, as there are around 225 banks and financial institutions.

The central bank move is targeted to some banks and financial institutions that have been increasing their investment in stocks in recent times for short term gain as they have excess liquidity. The banks and financial institutions are the financial intermediary and they should not be involved in short-term gain from stock market, according to the central bank. The global regulation for the banking sector Basel III also cautions banks and financial institutions against such investments.

However, the central bank has asked them to invest in the promoter shares of micro-finance institutions. “The banks and financial institutions can now count their investment in the promoter shares of micro-finance institutions as deprived sector lending,” said the directives of the central bank that has become flexible on deprived sector.

Likewise, the central bank has forbidden banks and financial institutions from using cash in the capital adjustment fund for other purposes except issuing bonus shares. The central bank has allowed the money left in the redemption reserve of them after repaying the liabilities under preference shares to be transferred into the capital adjustment fund.