Compulsion to banking merger! This is the strategy behind the merger

Nepal Rastra Bank has been active in merging the banks. NRB has informally informed all to move ahead with the merger of commercial banks, development banks and financial institutions and microfinance at a fast pace. In addition, a list of large shareholders affiliated to various banks is also being prepared, said an NRB source. NRB has barred various small banks and financial institutions from raising capital at the regional level without any announcement. Although some small development banks have shown interest in operating as state-level development banks, NRB has been pressuring them to merge forcefully. The recently merged development banks are an example of that. Various small development banks with offices outside Kathmandu have expressed their desire to go to the state level. However, NRB has been forcing them to merge.

In the absence of state-level banking

Nepal Rastra Bank has started pressuring banks and financial institutions to join the merger force. About a dozen small development banks operating outside Kathmandu were in the race to become state-level development banks. However, NRB has stopped the race. It is stated that the NRB has emphasized on force merger as the development banks operating at the local level cannot compete with the banks and financial institutions operating at the national level. That is the reason why development banks have merged so much. Tinau Mission Development Bank, Green Development Bank, Sindhu Development Bank, Sahara Development Bank, Saptakoshi Development Bank and Karnali Development Bank are currently planning to go to the regional level. However, in a few days, these development banks will merge with other banks. They have been informed to go for the unofficial merger. Merger policies are being discussed on the same basis. Currently, NRB has started to make the merger policy effective, estimating that there will be problems in the operation of small financial institutions due to corona infection and risk. Due to the Corona Crisis and its aftermath, the merger and capital increase of banking finance is becoming more meaningful.

Merger pressure on all banks and finances

At present, all banks, big and small, are under pressure to merge. NRB has focused on some weak bank finances and has also given priority to big mergers. NRB is also forcing microfinance institutions to merge. For the same reason, many microfinance institutions have merged even during the lockdown. The bankers have said that the bank finance, which wants to operate by increasing the paid-up capital of the bank, has also been forced to merge.

According to NRB sources, this has been done in line with the NRB's policy of reducing the number of banks and maintaining strong and strong banking financing. The number of microfinance will be limited to two dozen in the future, said Chintamani Shiwakoti, Deputy Governor of Nepal Rastra Bank. According to him, the merger policy has been put forward to strengthen the bank finance and the NRB has taken the policy of reducing the number of bank finance. Accordingly, NRB is engaged in the strategy of reducing the number of commercial banks to a dozen. Similarly, most of them have been informed to go for the merger as per the strategy of bringing the number of microfinance close to two dozen. The number of development banks is expected to decline further in a few days. Most development banks are in discussions for a merger. Finance companies are also discussing mergers. Of the 21 finance companies currently in operation, half are Jordan Finance. With the exception of a few national-level development banks, most of them have to merge. According to the current policy of NRB, it is planned to move ahead without having development banks and finance companies rather than keeping the number of development banks and finance companies. The policy of capital increase has been brought as per his plan to reduce the number of banks. However, commercial banks have not been able to reduce their numbers even though they have made some cuts. At present, there are 28 out of 32 commercial banks. Development banks, on the other hand, have dropped from 84 to 19. Development banks are in a state of further decline. In the long run, NRB will move only to operate commercial banks and microfinance, but a limited number of development banks and finance companies will remain in operation for a few years. Accordingly, microfinance will be limited to two dozen within the next two years. In order to reduce the number of commercial banks, NRB has started collecting details of big shareholders.