While bankers are ruing shortage of loan-able funds due to slow growth in deposits, Securities Board of Nepal (Sebon) has scrapped a rule that required the money collected in the initial public offering (IPO) or follow-up public offering (FPO) to be parked at the central bank for a certain period of time.
The decision comes in the wake of 'credit crunch' in the banking system which has crippled the capacity of the banks and financial institutions (BFIs) to float loans to borrowers.
“The rule has been scrapped because there are complaints of liquidity shortage in the market which was also affecting the secondary market," deputy spokesperson of the Sebon Niranjaya Ghimire, said. "Also the requirement is soon becoming redundant due to implementation of Applications Supported by Blocked Amount (ASBA) system."
Earlier, issue manager of any IPO or FPO was required to deposit all the money collected in the process at its account in the Nepal Rastra Bank (NRB) within six days of closing of the issuance for at least six days. Such requirement had also worsened the bank’s liquidity position as huge fund, like Rs 52 billion of money collected from the FPO of Nepal Life Insurance Company Ltd, gets stuck in the central bank’s vault.
With the new directives from the regulator of the capital market, the central bank is also expected to release Rs 52 billion tomorrow that would help ease the credit crunch in the financial system. Welcoming the Sebon decision, bankers also say the scrapping of rule will provide some respite to them.
With FPOs of some other big companies in pipeline, bankers had worried that more funds would end up at central bank’s vault, worsening their liquidity problem. The central bank's vault is already swollen by over Rs 200 billion also due to government's inability to spend and aggressive revenue mobilisation by the second quarter end.
The decision comes in the wake of 'credit crunch' in the banking system which has crippled the capacity of the banks and financial institutions (BFIs) to float loans to borrowers.
“The rule has been scrapped because there are complaints of liquidity shortage in the market which was also affecting the secondary market," deputy spokesperson of the Sebon Niranjaya Ghimire, said. "Also the requirement is soon becoming redundant due to implementation of Applications Supported by Blocked Amount (ASBA) system."
Earlier, issue manager of any IPO or FPO was required to deposit all the money collected in the process at its account in the Nepal Rastra Bank (NRB) within six days of closing of the issuance for at least six days. Such requirement had also worsened the bank’s liquidity position as huge fund, like Rs 52 billion of money collected from the FPO of Nepal Life Insurance Company Ltd, gets stuck in the central bank’s vault.
With the new directives from the regulator of the capital market, the central bank is also expected to release Rs 52 billion tomorrow that would help ease the credit crunch in the financial system. Welcoming the Sebon decision, bankers also say the scrapping of rule will provide some respite to them.
With FPOs of some other big companies in pipeline, bankers had worried that more funds would end up at central bank’s vault, worsening their liquidity problem. The central bank's vault is already swollen by over Rs 200 billion also due to government's inability to spend and aggressive revenue mobilisation by the second quarter end.
