A Cabinet meeting held on Friday gave a green signal for merger of state-owned Rastriya Banijya Bank (RBB) and NIDC Development Bank. The approval for merger was given based on a proposal forwarded by the Ministry of Finance this week.

RBB will now form a merger committee comprising representatives of both the institutions. This committee will then form two different sub-committees, which will look into technical and managerial issues, respectively, to execute the merger process, RBB CEO Kiran Shrestha said this week.

The technical sub-committee will conduct valuation of assets of the two entities and appoint an independent auditor to conduct due diligence audits. Another team will work out a plan to adjust the workforce of the two organisations in the merged entity. “It will take around six months to complete the merger process,” said Shrestha.

RBB has a paid-up capital of Rs8.58 billion while NIDC has a paid-up capital of Rs415 million and a reserve and surplus of Rs3.02 billion. “After the proposed merger, the new entity will be the largest commercial bank in terms of capital,” said Shrestha.

This is not the first time efforts have been made to merge these two stated-owned banks. In 2012, the Finance Ministry moved to consolidate the two units, but the plan never materialised, as NIDC was not very keen on the idea. At that time, the development bank was working on transforming the institution into an infrastructure development bank.

An announcement in this line was also made through budget speech of fiscal year 2013-14. However, the plan failed to make any headway due to poor preparation, and objections raised by Nepal Rastra Bank that NIDC lacked financial and managerial capacity to become an infrastructure development bank.

Then the budget of fiscal year 2015-16 floated the idea of merging NIDC with state-run Hydroelectricity Investment & Development Company Limited. A year later, that plan was abandoned too.

NIDC, which was once teetering on the brink of bankruptcy, has been posting cumulative profit since the fiscal year 2011-12.

Established in 1966, RBB, on the other hand, had also become technically bankrupt by 2000. A study carried out by KPMG in 1999 and 2000 revealed that the state-owned bank had negative net worth of $200-260 million largely because of lapses in corporate governance, corruption in lending, poor accounting and auditing practices, absence of strategic planning and weak human resources. Today, this bank has also made a sharp turnaround and was able to generate a net profit of Rs2.7 billion in the last fiscal year.