Central bank can force financial institutions for acquisition

Central bank can force financial institutions for acquisition

Central bank today – introducing Acquisition Bylaw 2070 – said that it can force banks and financial institutions to go for acquisition. The central bank force banks and financial institutions to acquire troubled institutions, and institutions promoted by the same person, firm or company, according to the new bylaw that has paved the way for banks and financial institutions to acquire other banks and financial institutions to raise their net worth and expand balance sheet size. Banks and financial institutions that fail to lower non-performing loans below five per cent for three consecutive years, facing prompt corrective action for at least three times, and those failing to pay liabilities may also be subject to forceful acquisition. Likewise, the central bank may also force those ones failing to raise paid-up capital to the required level, issue public shares timely and of those, whose shares are not subscribed. "The deteriorating corporate governance due to tussles among board directors, if puts interests of depositors, shareholders and service seekers at risk, could also be forcefully sent to acquisition," the bylaw stated. If a bank and financial institution fails to finalise a planned acquisition within the deadline, central bank can also take legal action for cancelling the final approval, according to the bylaw that has permitted class A commercial banks, class B development banks and class C finance companies' acquisition each other. "But they are barred from acquiring class D microfinance banks. Microfinance banks can be acquired by other microfinance institutions only." The central bank had already brought Merger Bylaw but the banks and financial institutions, in an absence of Acquisition Bylaw, has been acquiring other banks and financial institutions under merger law. The central bank has also clarified – in the Bylaw – that the class B development banks can also acquire the class A commercial banks. The bylaw has also offered concessions – including the extra time frame to restructure equity, deprived sector lending and investment ceiling, and bringing down credit-deposit ration to 80 per cent – to the financial institutions in order to ease the acquisition process. However, the banks and financial institutions first have to get the approval from their shareholders before going for acquisition. A joint acquisition committee, under the coordination of the financial institution that intends to acquire another should be formed before applying for the acquisition to the central bank, stated the bylaw. "The application should be supported with a letter from Nepal Stock Exchange (Nepse) of suspension of their stock trading." The central bank, after it gets the application, will call both the parties for meeting and asks them to go ahead with due diligence audit that will evaluate assets and liabilities, it added. "Institutions can be acquired by purchasing stocks in cash or by offering stock option. But the central bank will discourage acquisitions that is aimed at creating monopoly, encourage unfair competition or destabilise banking sector, the central bank said.
All Rights reserved © 2019 - Designed & Developed by InDesign Media