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Kathmandu Monday February 25, 2002 Falgun 13, 2058.
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AMC formation contravenes NRB
Act
Post Report
KATHMANDU, Feb 24: A legislative complication
has emerged over the proposed establishment of the much touted Asset Management Company
(AMC) as the recently enacted Nepal Rastra Bank (NRB) Act prohibits any investment by the
central bank in the financial sector.
Clause 7 (1b) of the new NRB Act bars the
central bank from purchasing shares of any commercial banks, financial institutions,
public enterprises or any other companies. It also disallows the NRB to hold ownership
rights in any sort of company including that of financial, trade, agricultural, and
industrial.
Nevertheless, Clause 7 (2a) of the Act allows
the central to hold ownership rights of upto a maximum of 10 per cent of the total capital
of the institutions that helps the NRB in discharging its duties and responsibilities.
The proposed AMC that aims to bring down the
swelling size of the bad debts in the financial sector, especially the banking sector, was
to be established with a capital fund of Rs 1 billion, out of which the NRB was to invest
Rs 490 million. However, with the new NRB Act in place, the central bank can contribute to
a maximum of only Rs 100 million on the capital fund of the proposed company.
Experts are now apprehensive if the new
company would be formed at all. Their reasoning is based going not just by the provisions
of the NRB Act, but also by the usual losses that such asset management companies end up
in.
"Since asset management companies around
the world has a history of losses, the private sector would not be interested to be a part
of it. Here in Nepal, with legislative restrictions, the NRB plans may not materialise
soon," says an expert, who is an official at the Ministry of Finance.
He further added, "Since the government
itself is presently pressed under resource constraints, it is unlikely that it would be
interested to make any huge investment at this point in time."
The central bank had forwarded the basic
guidelines for the formation of the AMC to the Ministry of Finance for final approval few
weeks back. The proposed AMC would primarily focus on the management of the non-performing
assets of four financial institutions that include Nepal Bank Limited (NBL), Rastriya
Banijya Bank (RBB), Agricultural Development Bank (ADB) and Nepal Industrial Development
Corporation (NIDC).
The AMC would deal with limited number of bad
debts as declared by the Credit Information Centre. It would be dissolved after the NPAs
are reduced to a minimum acceptable level.
According to guidelines set by the NRB for
the proposed company, the AMC would revaluate the collateral and loans of financial
institutions at current price. The AMC would take in charge of the bad debts and issue
government-backed AMC bonds of equal value to the concerned financial institutions.
The AMC would initially deal with a total of
Rs 11 billion NPAs of the two giant commercial banks, namely NBL and RBB. According to the
NRB statistics, over 20 per cent of loans of the NBL and the RBB are non-performing
assets.
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