Rural development banks' due diligence completes, ready to merge

The due diligence audit (DDA) for the merger of five regional development banks has revealed that their per unit share value varies from Rs 1.02 to Rs 140.

Pashchimanchal Grameen Bikas Bank's — the best performer in the pack — share has been valued at Rs 140 per unit, according to the due diligence report that has revealed that Purbanchal Grameen Bikas Bank and Sudur Pashchimancal Grameen Bikas Bank's per unit has been valued at Rs 1.02 each, whereas Madhyamanchal Grameen Bikas Bank's is valued at Rs 1.17 and Madhya Pashchimanchal Grameen Bikas Bank's at Rs 77.

The merger initiated by the central bank to make a strong national level development bank to serve the poor could be completed by the end of this fiscal year, according to the head of the merger committee Jagat Pokharel.

The merged national level class 'D' microfinance development bank will have a paid up capital of Rs one billion, he said, adding that the current total paid up capital of the five banks stands at Rs 396.5 million. "The government will pump in funds to increase the paid up capital to Rs one billion."

Earlier, the board meeting of the central bank had decided to give Letter of Intent to the five regional development banks for their merger. They had signed a memorandum of understanding to become a single national level class 'D' microfinance development bank on November 10, 2012. They had signed a MoU to merge into a single entity on October 11, 2012.

Among the five, only Pashchimanchal Grameen Bikas Bank is in sound financial health and posted profit last fiscal year. It had also floated shares, which was oversubscribed. But before it could list its shares at Nepal Stock Exchange, the central bank approved the merger halting the listing process. However, it distributed 10.5 per cent cash dividend from last fiscal's profits recently.

The financial health of the remaining four deteriorated due to frequent political bickering forcing the central bank to ask them to merge. The five regional rural development banks were established jointly by the government and the central bank with the objective of extending microfinance services to rural women so that they could gain access to unsecured loans to create self-employment opportunities.

Over the years, they have established some 240 branches across the country.

"But the biggest challenge for the merger is managing staff numbers," said Pokharel, adding that they have gained expertise over the years and need to be managed. "The meeting with employee unions this Thursday will come out with some concrete solution."