NRB relaxes institutional promoters shares’ ceiling

The institutional savers can now own large promoter stakes of more than one financial institution, the move that is expected to boost the share market.
The central bank has lifted the provision barring institutional savers from investing up to 15 per cent of paid up capital in more than one financial institutions and paved the way for Employees Provident Fund (EPF), Citizen Investment Trust (CIT) and Rastriya Beema Sansthan to buy more shares.
However, the regulation for not allowing a majority share holder of a financial institution to own more than one per cent stake in another financial institution is still intact for other promoters.
The only exception in the rule is the financial sector related companies that have 50 per cent or more stakes owned by Nepal government, according to the central bank.
For others that own up to 15 per cent promoter shares of paid up capital in one financial institution and have more than one per cent stake have to brought down the stakes within the end of this fiscal year.
"The regulation was supposed to curb multiple ownership of financial institutions by individuals and companies but it impeded institutional savers being involved in financial institutions," pointed out spokesperson of Nepal Rastra Bank (NRB) Bhaskar Mani Gyanwali.
The bulk investment by government owned institutional savers like the EPF and CIT in the share market was supposed to salvage the securities market from the dumps that it is in. However, NRB's regulation regarding ownership of the share that did not allow these institutions to aggressively invest in the stock market dominated by financial institutions earlier.
The central bank has but forbidden the executive board of banks and financial institutions to form any other committees except for audit committee, risk management committee and employee management and remuneration committee. The committees can be headed by the board members of the bank but chairman cannot be involved in any of the committees.
"The regulation will ensure proper corporate governance as the directors will be more involved in policy making and management in execution of policies instead of executives handling all the tasks," pointed out Gyanwali.
NRB has directed the financial institutions to determine the allowance for the committee members equal to the board members. The committees can have expert from outside as a member but the member should be between three to five in numbers.
The central bank has spelt out the roles and responsibilities of the three committees as well. The audit committee has to review and keep tab on the financial institution's internal accounts and condition and give instructions to the accounts department regarding required improvements.
Likewise, risk management committee will assess the internal and external risks and recommend measures to tackle them. The employee management and remuneration committee will look after human resource management issues of the financial institution.