THE government’s decision to transform the NIDC Development Bank into an infrastructure development bank has not gone down well with the Nepal Rastra Bank (NRB). The central bank has ‘strong reservations’ over the budget announcement that talks of such a transformation. According to NRB officials, the decision was taken without taking the central bank’s opinions on the matter. According to them, transforming the NIDC into a development bank is not feasible, given its financial status and managerial capacity. “We are not happy with the government’s decision,” a senior NRB official said. “There is also the question of how the huge capital needed for an infrastructure bank would be managed.” Finance Secretary Shanta Raj Subedi, however, defended the decision, saying that there was no need to take opinion from others as the move was made by the government. He said the government felt the need for a banking institution that could invest in big infrastructure projects, as the Hydrœlectric Investment and Development formed last year was limited to investments in power-related infrastructure projects only. “Our commercial banks are also not capable of investing in large scale infrastructure projects,” he said. The decision, according to the NRB, illustrates a ‘policy inconsistency’ on part of the government. The High Level Financial Sector Reform Recommendation Committee had in September 2012 decided to merge the NIDC with the state-owned Rastriya Banijya Bank (RBB). “The decision has been reversed within 10 months,” the NRB official said. Even during lower-level discussions at the Finance Ministry, it was suggested that there was no need to establish another governmentowned institution as the fully stateowned HIDC and the RBB already exist, according to a ministry official. “Such a decision (to form infrastructure banks) was taken at the higher level,” said the official. NRB officials also pointed out some ‘contradictory provisions’ in the budget. “The budget in one paragraph talks of merger of government- owned banks and financial institutions, while in the other, it talks about transforming the NIDC into an infrastructure bank,” he said. The government’s earlier plan to merge the NIDC with the RBB did not materialise due to strong reservations from the NIDC staff and management. Following its steady revival, the NIDC management was of the view that it could survive on its own, rather than merging with big financial institutions. The state-owned development bank, which was once on the brink of bankruptcy, has recovered to a cumulative profit since the fiscal year 2011-12. Its net profit, as of the third quarter of the fiscal year 2012-13, was Rs 252 million. The government has, however, not allocated any budget for transforming the NIDC into an infrastructure development bank, despite the fact that doing so needs a big share of the budget pie. Subedi said there has to be a feasibility study before capital injection. He said the government would first go for a feasibility study for transforming a development bank into an infrastructure development bank. He, however, said the government has not closed the door for the NIDC’s merger. “The provision on the merger of state-owned banks and financial institutions and transformation of the NIDC into an infrastructure bank were incorporated to keep both the doors open,” he said. There is also no clarity on legal issues related to the establishment of an infrastructure bank, as the current Bank and Financial Institution Act (BAFIA) has no such provision. The proposed BAFIA, which remained stuck at the parliamentary committee before the dissolution of the Constituent Assembly, had made a provision for an infrastructure bank. The draft of the proposed BAFIA had given the central bank the right to fix the capital for such a bank. “Now, the whole BAFIA process should begin from scratch even if the Act is brought through an ordinance,” the NRB official said. The High Level Financial Sector Reform Recommendation Committee had in September 2012 decided to merge the NIDC with Rastriya Banijya Bank

THE government’s decision to transform the NIDC Development Bank into an infrastructure development bank has not gone down well with the Nepal Rastra Bank (NRB). The central bank has ‘strong reservations’ over the budget announcement that talks of such a transformation. According to NRB officials, the decision was taken without taking the central bank’s opinions on the matter. According to them, transforming the NIDC into a development bank is not feasible, given its financial status and managerial capacity. “We are not happy with the government’s decision,” a senior NRB official said. “There is also the question of how the huge capital needed for an infrastructure bank would be managed.” Finance Secretary Shanta Raj Subedi, however, defended the decision, saying that there was no need to take opinion from others as the move was made by the government. He said the government felt the need for a banking institution that could invest in big infrastructure projects, as the Hydrœlectric Investment and Development formed last year was limited to investments in power-related infrastructure projects only. “Our commercial banks are also not capable of investing in large scale infrastructure projects,” he said. The decision, according to the NRB, illustrates a ‘policy inconsistency’ on part of the government. The High Level Financial Sector Reform Recommendation Committee had in September 2012 decided to merge the NIDC with the state-owned Rastriya Banijya Bank (RBB). “The decision has been reversed within 10 months,” the NRB official said. Even during lower-level discussions at the Finance Ministry, it was suggested that there was no need to establish another governmentowned institution as the fully stateowned HIDC and the RBB already exist, according to a ministry official. “Such a decision (to form infrastructure banks) was taken at the higher level,” said the official. NRB officials also pointed out some ‘contradictory provisions’ in the budget. “The budget in one paragraph talks of merger of government- owned banks and financial institutions, while in the other, it talks about transforming the NIDC into an infrastructure bank,” he said. The government’s earlier plan to merge the NIDC with the RBB did not materialise due to strong reservations from the NIDC staff and management. Following its steady revival, the NIDC management was of the view that it could survive on its own, rather than merging with big financial institutions. The state-owned development bank, which was once on the brink of bankruptcy, has recovered to a cumulative profit since the fiscal year 2011-12. Its net profit, as of the third quarter of the fiscal year 2012-13, was Rs 252 million. The government has, however, not allocated any budget for transforming the NIDC into an infrastructure development bank, despite the fact that doing so needs a big share of the budget pie. Subedi said there has to be a feasibility study before capital injection. He said the government would first go for a feasibility study for transforming a development bank into an infrastructure development bank. He, however, said the government has not closed the door for the NIDC’s merger. “The provision on the merger of state-owned banks and financial institutions and transformation of the NIDC into an infrastructure bank were incorporated to keep both the doors open,” he said. There is also no clarity on legal issues related to the establishment of an infrastructure bank, as the current Bank and Financial Institution Act (BAFIA) has no such provision. The proposed BAFIA, which remained stuck at the parliamentary committee before the dissolution of the Constituent Assembly, had made a provision for an infrastructure bank. The draft of the proposed BAFIA had given the central bank the right to fix the capital for such a bank. “Now, the whole BAFIA process should begin from scratch even if the Act is brought through an ordinance,” the NRB official said. The High Level Financial Sector Reform Recommendation Committee had in September 2012 decided to merge the NIDC with Rastriya Banijya Bank