Finance Minister Ram Sharan Mahat on Thursday urged the Parliamentary Finance Committee not to intervene in the Nepal Rastra Bank’s (NRB) move to raise the paid-up capital requirement for commercial banks. He explained the central bank took the initiative after conducting an intensive study on the policy to streamline the country’s financial sector.

The NRB through the Monetary Policy 2015 has directed A-class financial institutions to raise their paid-up capital to Rs8 billion from the existing Rs2 billion in the next two years. The bankers, however, have been demanding additional time.  Mahat said the NRB took the step with to reduce the number of banks and strengthen their capacity.

“The Parliamentary committee should not intervene in the decision made by the autonomous body. The policy was announced through the country’s fiscal year’s monetary policy,” Mahat said.

However, the Finance Minister was positive on the bankers’ demand for a deadline extension. He said it could be reviewed based on practical grounds.

Upendra Paudel, president of Nepal Bankers’ Association, said the banks were not against the NRB’s new policy, but said there were a few practical difficulties. “The NRB has to address such difficulties by introducing policies related to them.”

Some lawmakers hailed the NRB’s decision, while others opposed. Lawmaker Udaya Shumsher Rana said it would be better if the banks served rural areas by converting themselves into “big banks”. “Due to low paid-up capital, the banks are over concentrated in urban areas.”

Lawmaker Jagadishwor Narasingha KC said it was too early to criticise the NRB’s decision as it has been only one and half months since the policy was introduced.

Acting governor Gopal Kaphle said the central bank would adopt flexibility if the banks failed to raise their capital in the stipulated time.

He said the NRB has enforced

the provision considering poor

state of a number of small banks. “Some of them could even face severe financial crisis if only a few borrowers default loans,” he said, suggesting the small banks to go for merger with the big banks.

However, lawmaker Icchha Raj Tamang, who is also the chairman of Civil Bank, said the policy could benefit some old banks, while affecting new ones. “The adverse impact of the policy has started to appear in the real estate business and the stock market,” he said.

Lawmaker Duman Singh

Thapa, who is also the director of Mega Bank, urged the NRB to introduce separate policies for old and new banks. “The decision will affect new banks, in which the majority of the promoters are from middle-income group,” Thapa said.