RBB, NIDC to merge within six months

Two of the largest public sector financial institutions will merge to form the largest commercial bank in the country within the next six months.

The High Level Financial Coordination Committee's meeting held today has decided to initiate the merger procedure between Rastriya Banijya Bank (RBB) and NIDC Bank. The committee -- headed by the finance minister also includes central bank governor, Securities Board of Nepal's chairman, Insurance Board's chairman and the finance secretary -- has formally asked the Finance Ministry to start the process.

After the merger of the class 'A' and class 'B' financial institutions, the merged entity will be the largest commercial bank in Nepal. Rastriya Banijya Bank already has the largest asset base of about Rs 100 billion. After the government injected Rs 4.32 billion in the ailing bank at the end of last fiscal year, its paid up capital has increased to Rs 5.49 billion. NIDC Development Bank has a paid up capital of Rs 415.85 million. Thus following the merger, the new commercial bank will have Rs 5.9 billion as paid up capital.

Though the two state-owned financial institutions had pursued a merger for the past two years as per the central bank's suggestion, it had not taken off formally.

"Since the owner of both the institutions is the government, and NIDC's minority shareholders are also small in size, the merger process is expected to be smooth and fast," said chief executive of RBB Krishna Prasad Sharma.
RBB is completely owned by the government, while NIDC's 2,978,784 unit shares are listed at Nepal Stock Exchange.

Both the financial institutions were not doing well a few years back as NIDC's net worth was negative by more than Rs one million in 2006. As of the last quarter of fiscal year 2011-12, its reserve was surplus by Rs 829 million. Despite the capital injection by the government, RBB's net worth was negative by Rs 2.8 billion at the end of last fiscal year. The bank went through almost a decade-long Financial Sector Restructuring Programme since 2002, which improved the bank’s performance but the bank’s core capital remained negative.

"The merged bank will get additional capital of Rs 415 million and as per our capital plan, the bank will get additional funds by issuing redeemable preference shares so that by the end of the current fiscal year RBB's net worth will be positive," said Sharma.

In the last three years, both Rastriya Banijya Bank and NIDC have forwarded voluntary retirement schemes for their employees to cut costs and pave the way for a merger. "The current number of employees in both the financial institutions can easily be adjusted," added Sharma.

The high level committee has directed the financial institutions to form a merger committee coordinated by the central bank. The financial institutions have to call for a special general meeting to approve the merger and get due diligence audit.

According to caretaker finance minister Barshaman Pun, the merger between the two public sector banks will not only create the largest bank in the country, but will also inspire private banks to seek mergers.