Rastriya Banijya Bank & NIDC all set to merge

At a time when private banks and financial institutions (BFIs) are engaged in homework for the proposed merger among them, the government is planning to merge two state-owned financial institutions. Work is on to merge the Rastriya Banijya Bank (RBB) and Nepal Industrial Development Corporation (NIDC) within this fiscal year. The RBB-NIDC merger is on line with the central bank's suggestion that came around three months ago. The plan is an alternative mooted by the government instead of injecting capital in the RBB.

With the government's reluctance to inject fresh capital in the RBB, the merger is now being taken as a measure to turn the bank's capital from negative to positive. Currently, the RBB's net worth is negative by Rs 10 billion. The government has been reluctant to inject capital in the RBB saying that the budget for development purposes cannot be used to rescue a bank. Addressing the RBB's 46th anniversary programme, Finance Minister Surendra Pandey and Nepal Rastra Bank (NRB) Governor Yubaraj Khatiwada on Monday suggested the RBB go for merger.

Despite implementation of the financial sector reform programme for eight years, the RBB has failed to turn into a healthy bank. As per the government plan, RBB's net worth can be turned positive by selling the assets of the NIDC if both institutions are merged. The NIDC has plots of land in Kathmandu, Pokhara, Biratnagar, Bharatpur, Mahendra Nagar, Surkhet and Dhangadi, whose estimated worth is Rs 10 billion. If the RBB-NIDC merger happens, it will be the first instance of government-owned financial institutions getting merged. Unlike the RBB, the NIDC's financial health is gradually improving with its net worth that was negative by Rs 1.22 billion in 2006 turning positive by Rs 900 million by the end of the last fiscal year. "NIDC's status has improved as a result of recovery of loans and sales of shares in another bank," said a senior NIDC official. The NIDC that has paid up capital of Rs 410 million had earned profits of Rs 450 million last fiscal year. The NIDC recently submitted its audit report of the past eight years to the NRB.

With the government having a majority stake in the NIDC, it won't have hiccups in getting the merger decision endorsed by the annual general meeting (AGM) of the NIDC. As per laws, the AGM will have to endorse the merger decision. The government has given priority to mergers through the budget for the current fiscal year. However, RBB's employee unions are not positive about the proposed merger plan. During the 46th anniversary of the RBB, representatives of employees unions had expressed reservations on the merger plan.

The NIDC has also initiated the voluntary retirement scheme (VRS) to pave way for a smooth adjustment of employees after the merger. "The VRS has been designed to give more than the normal benefits to employees retiring," said a source at the NIDC. The NDIC employees, however, have not shown interest in the VRS till now. The deadline to apply for VRS is Jan. 31. There are 49 permanent employees in the NIDC and the VRS is targeted at 33 of them who have served over 15 years at the NIDC. The government will opt for compulsory retirement scheme if the employees don't leave the NIDC under the VRS. "Such a provision can be implemented for those who have crossed 20 years of service in the NIDC," said the source.

The central bank is also planning to give certain incentives for merger while reviewing the monetary policy in February. The budget has already announced changing the existing provision of taxing assets and liabilities as disposal after mergers, making it non-taxable to encourage mergers amongst the BFIs. Of late, more BFIs are in the process of merging. Banks and finance companies promoted by the NB group are in the process of merger. They include Nepal Bangladesh Bank and Nepal Credit and Commerce Bank. Birgunj Finance of Birgunj and Himchuli Finance of Pokhara also recently signed an agreement for merger.

Source:
ekantipur