--By Madan Lamsal

Nepali banks were doing alright. But the new governor had to start his job with a bang and so he did – a Big Bang. He announced: "Within the next two years, all banks are required to raise their paid-up capital to eight billion rupees! Or else…."

Ouch! But how are the banks going do that in such a short time? 

It seems like the banks aren’t even allowed to do that by issuing right shares or even Further Public Offerings (FPOs). What will the banks do now?

Perhaps, the current central bank big wig who is also a former boss of the Securities Board of Nepal (SEBON) as well, wished to have some impact also on the Securities Market. His predecessor, too, as soon as becoming governor, had started with a similar Big Bang. He had ordered the banks to increase the paid-up capital to two billion rupees and fixed the ceiling on real estate lending overnight! Now that the new governor has done something similar, we can all now look forward to a similar tradition to be upheld in the future. What more assurance can you hope for in policy stability?

But there are several theories as to what inspired the new boss of NRB to act as he did. Conspiracy theories, you may say, but they are in the end theories, and people move by theories in economic matters.  

So, one strong such theory is that NRB’s new boss wants only one thing – Merger of Banks and Financial Institutions. He wants a financial market of a few Big Banks. Call this Merger Mantra Theory. Seems he is swayed by the theory of Big is Beautiful, in contrast to Small is Beautiful that the Great Leader BP Koirala advocated in line with British Economist EF Schumacher. Thank God, Prime Minister Sushil Koirala has not yet got the scent of this. Otherwise, he would have sacked the governor right away for going against what BP preached. 

And there is another theory as well, though related with the Merger Mantra Theory. NRB Boss Nepal is worried that the banks owned by two groups from the very beginning or after they merged in the previous round, are at high risk of a possible rift between two groups of owners. It is to pre-empt such risks that he wants to bring in a third group or even fourth in the same bank so that the remaining groups will ensure the smooth operation of the bank even if two other groups clash between themselves.  Very clever! Why doesn’t the Constituent Assembly too follow the same theory and ensure that federated future Nepal too will not face such a risk? The same theory can be adopted also by SAARC and thereby the UN. The governor really deserves two Nobel Prizes simultaneously – one for Economics and one for Peace. 

Whatever the case maybe, it seems gone are the days when the promoters and CEOs of the banks earned good profits and took fat bonuses. Because things are not as easy now as they were then. Even if the banks increased the capital somehow to 8 billion, where will they deploy it as investments to earn enough to keep up the previous dividend and bonus tradition? Somebody's evil gaze must have fallen on the banks and such people might have swayed the so nice, handsome and affable new governor!

Many of the nouveau riches were in the mood to open banks with two billion rupees. Now, with the thought of eight billion, they must have cooled down or lost that mood. But really, even if they are willing to put in their two billion and raise the rest from the public, the NRB’s rule is a hurdle. Because, as the rule has it, the promoters’ shares have to be at least 51 per cent!   

But what’s flabbergasting is why is the public, if it trusts the banks management, not allowed to own even 60 or 80 percent of their shares? Many business houses in India like Tata have been functioning well, creating capital for itself and the country, by managing companies where it owns just two-four percent of shares. Why do things always have to be very different in Nepal? Or is it because we simple souls do not understand even such straightforward things?

The main question still remains the same. How are the banks going to meet the eight billion rupees challenge? Looking at things, the NRB’s motive seems to be to round the banks up, even if it means forcefully. Like cowboys with lassos! That too is alright. But how will the banks be able to obey, that too within the said two years?

It doesn’t seem to work this way or that way. Whatever it is! It has caused turmoil among the promoters of Nepali banks. They can neither hold on to their investment, nor can they have it sold.  Now they need to be bold enough to reach the target set by their big boss by hook or by crook!