Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: Nepal Rastra Bank (NRB) has paved the way for banks and financial institutions (BFIs) struggling with capital adequacy to issue rights shares starting from the Nepali month of Ashoj (mid-September). The decision comes as a timely relief for around a dozen and a half institutions that have been unable to expand their business operations due to capital shortfalls.
According to NRB officials, the bank’s management committee has already directed the concerned departments to begin processing approvals for rights share issuance in BFIs that meet the necessary regulatory and compliance criteria.
“We’ve made the policy-level decision. Banks facing capital stress and meeting due diligence requirements will be allowed to raise capital through rights offerings,” confirmed a senior NRB official.
This development comes after prolonged demand from the banking sector to open avenues for capital augmentation. Many institutions have faced difficulties in meeting regulatory capital adequacy ratios due to slow profit growth, mounting non-performing loans (NPLs), and the ongoing liquidity crunch.
Regulatory Compliance to Be Strictly Monitored While the window for rights issuance will be open, NRB has clarified that only those BFIs that fulfill capital adequacy requirements, internal governance benchmarks, and submit viable capital plans will be allowed to proceed.
The central bank will also ensure that the rights issue does not jeopardize small investors or result in excessive dilution of ownership. Institutions with histories of weak governance or unresolved audit issues may not be eligible.
Rights Issue as a Tool for Capital Strengthening Issuing rights shares allows existing shareholders to purchase additional shares, typically at a discounted rate. For BFIs, it is a key tool to raise capital without seeking external investors or taking on more debt.
Experts view NRB’s move as a signal that the regulator is trying to stabilize the financial sector’s foundation while still enabling growth in a controlled manner. “Rights shares are an effective way to build capital buffers, especially for banks with potential but currently undercapitalized,” said financial analyst Suman Neupane.
Banking Sector Under Pressure The banking sector in Nepal has been under strain due to a combination of low credit growth, high interest rates, and tightening supervision. Several development banks and finance companies, in particular, have flagged the need for capital enhancement to meet Basel III requirements.
The NRB’s forthcoming Monetary Policy had hinted at possible flexibility in rights issues, and this new directive confirms that policy-level support is being operationalized.
With the green signal for rights share issuance now official, several institutions are expected to submit their proposals to the central bank in the coming weeks. Industry insiders expect the majority of the rights offerings to hit the market in the second quarter of the current fiscal year.
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