Nepal Rastra Bank no to mutual fund operations

An effort of two commercial banks to establish a mutual fund has hit a snag after the central bank refused to permit them to jump into the business, stating that Bank and Financial Institutions Act (BAFIA) does not include mutual fund operations as areas of activities for the banks. Nabil Bank and Kumari Bank had recently sought permission from the central bank to set up mutual fund. "We had to say no to them because BAFIA, the law governing banks and financial institutions that defines areas of operations, lacks ´mutual fund´ in the list of activities that the banks can venture into," said a source at the Nepal Rastra Bank (NRB).

NRB´s denial, meanwhile, has almost closed the new investment avenue for small investors, because capital base and other requisites provisioned in the existing Regulations on Mutual Fund make only the commercial banks eligible to kick-start the business. According to Mutual Fund Regulations enacted a year ago, any corporate entity interested to establish a mutual fund must have a minimum paid-up capital of Rs 1 billion. Apart from that, the interested institution must also have completed five years of operations, earned profit for last three consecutive years and have paid-up capital not less than its net worth.

"Clearly, only commercial banks are eligible institutions to establish mutual fund. We are surprised over the central bank´s denial to let the banks jump into the business," a senior official of Securities Board of Nepal (Sebon) said, preferring anonymity. The official even argued that BAFIA was not a hindrance, because the act also has a clause whereby the central bank can authorize banks and financial institutions to undertake financial activities, even if it is not clearly stated in the law. "It´s just a matter of will. There are ample examples of banks operating mutual funds all round the world," the official added. NRB officials, however, said that they were not negative toward banks venturing into mutual fund operations. "It is just that we need policy clearance. Once we get that, we will readily allow banks to set up mutual fund," said the NRB official.

Sebon in recent years had pushed for mutual fund -- an instrument of collective investment in which money from a large number of investors is pooled -- in a bid to widen the capital market and also to pledge additional investment opportunities to the small investors. The pool is managed professionally and investment is made in securities, like stocks, bonds and short-term money market instruments among others. Typically, the fund manager buys and sells the fund´s investments in accordance with the fund´s investment objective. Sebon - the stock market regulator -- is entrusted with the responsibility of overseeing the operations of the manager, ensuring that it is managing the fund appropriately in the best interests of the investors.

Source:
myrepublica