July 16 - KATHMANDU: Nepal Rastra Bank (NRB), the central monetary authority, today introduced Unified Directives 2014,
which, among others, prevents individuals from acquiring loans to purchase promoter shares of banks and financial institutions (BFIs), makes it mandatory for promoters and high-ranking officials of BFIs to declare their properties, paves the way for development banks and finance companies to park money in BFIs, and eases provision on margin lending.
The Unified Directives, which is a compilation of several new and old instructions issued by the central bank, has barred individuals from acquiring loans from financial institutions to purchase promoter shares of BFIs.
Currently, NRB has barred individuals from acquiring credit to become shareholders of newly established BFIs and purchasing shares floated through initial public offerings.
However, there is no clear cut provision that prevents individuals from acquiring loans to purchase promoter shares available in the market.
"The latest provision is specifically targeted towards preventing the practice of obtaining loans to purchase promoter shares up for grabs," a high-ranking NRB official told The Himalayan Times.
Similarly, NRB has also made it mandatory for promoters, CEOs, officer-level staff of BFIs and their family members to update their statement of fixed and non-fixed assets within 35 days of conclusion of every fiscal year.
"This facility will give us an idea on their net worth if we have to freeze their assets due to involvement in malpractices," the NRB official said.
NRB has also allowed development banks and finance companies to park money in call deposit accounts of other financial institutions. Earlier, NRB had allowed such institutions to deposit money restrictively in commercial banks till mid-July of this year.
Among others, NRB has eased provisions on margin lending — loans issued against stocks.
Currently, BFIs have to ask borrowers, who have obtained loans on the back of shares, to pledge additional collateral if the value of shares used as security drops by up to 10 per cent.
The new provision has annulled that facility, but on condition that the value of shares is at least one and a half times the loan obtained by the borrower.
This means a borrower who has obtained a loan of say, Rs 100, on the back of shares worth, say, Rs 1,000, will not have to pledge additional collateral even if the value of shares drops by 10 per cent to Rs 900.
Similarly, NRB has also allowed promoters of BFIs, who convert promoter shares to public shares, to hold such public shares. The provision was introduced to clear the confusion created by two contradicting provisions.
Currently, one provision allows up to 49 per cent of promoter shares to be converted into public shares as against the previous policy of allowing only 30 per cent of the promoter shares to be converted into public shares. But, on the other hand, the Bank and Financial Institution Act bars promoters, CEOs, auditors, board secretaries and officials working in finance and account departments to sell the shares of BFIs they are engaged in for up to a year of stepping down from those institutions.
"This provision had prevented many from immediately converting promoter shares into public shares. We hope the new provision will clear the confusion," the NRB official said.
Among others, the Unified Directives has made it mandatory for BFIs to extend home loans and credit for the purpose of building complexes upon abiding by the National Building Code.