State-owned NIDC Development Bank has sought Nepal Rastra Bank’s (NRB) approval to issue bonus shares to increase its paid-up capital to Rs 640 million as required for national-level development banks. However, the central bank asked for an explanation for taking such a decision in violation of Bafia.

“We have not received a response from NIDC yet,” said a senior NRB official. NIDC has to increase its paid-up capital to at least Rs 640 million by the current fiscal year to avoid punishment by the central bank. Currently, the bank has a paid-up capital of Rs 415.82 million.

NRB can bar BFIs failing to increase their paid-up capital to the required level from distributing dividends, expanding their branch network and issuing loans.

Meanwhile, the government which owns the development bank has not taken any decision regarding conducting an initial public offering (IPO) to enable it to distribute bonus shares. The government wants NIDC Development Bank to IPO at a premium as it has been making profits for the last two years.

“In order to issue public shares at a premium, NIDC Development Bank should have been making profits for three consecutive years,” said Krishna Prasad Devkota, joint secretary at the Finance Ministry. “However, it has been just two years since it started making profits.”

He added that distributing bonus shares would not be possible as the law has clearly prevented it without going public.

Meanwhile, the issue has attracted the attention of the Commission for the Investigation of Abuse of Authority (CIAA).

According to NIDC Chairman Khum Raj Punjali, the CIAA has directed it to settle the issue in coordination with the Finance Ministry, NRB and the Securities Board of Nepal without violating the law.