NRB Bars BFIs From Short-Term Investment In Share Market

The Nepal Rastra Bank (NRB) has barred the banks and financial institutions (BFIs) from making investment in the stock market for a period of less than one year.
Amending its Integrated Directives 2020 on Tuesday, the central bank has applied strict measures on BFIs’ investment in the share market.
It has allowed the investment in the shares and debentures of the companies that have issued shares to the public and are listed at the securities trading market for more than one year’s period.
“No BFI is allowed for short-term investment in any way in the listed companies,” said the central bank.
It added a new provision in the circular and said that the BFIs could sell shares worth only up to 1 per cent of the primary capital of the investment in one fiscal year. However, this provision will not be applied to the shares acquired before 24 May, 2020.
Likewise, BFIs are barred from making investment in the class ‘D’ microfinance banks other than the purpose of maintaining book for the ‘deprived sector lending’. If they had shares of microfinance banks, they should be disposed before the end of the first half of the coming fiscal year 2021/22.
Earlier, the directive had allowed the BFIs of class ‘A’, ‘B’ and ‘C’ to make investment in shares and debentures of companies listed at the stock market and issued the Initial Public Offering (IPO) to the public. They were also allowed to invest in the shares of companies not listed at the stock exchange but such companies should be listed in the next three years, otherwise they had to provision the money in their investment integration fund.
They were allowed to make investment at maximum 10 per cent of the company’s shares and debentures and mutual funds.
Nepal Bankers Association (NBA) said that the BFIs’ opinions were divided on the issue.
Its President Bhuwan Kumar Dahal said that the central bank’s intention could be channelizing the investment to the productive areas than the stock market.
He said that the NBA would study about the impact the new provision could make on the banking industry and the stock market.
However, share market analyst Prakash Tiwari appreciated the new move of the central bank and said that the BFIs were recently focused on short-term transaction of shares and earning from it.
“BFIs’ primary job is to mobilise the deposits and loans, investing in the stock market is the secondary activity. But recently they have been aggressively involved in share transaction. Some banks have even been trying to establish a separate department for the same,” he said.
According to him, banks should not be involved in the everyday transaction of the shares.
The new provision is expected to control the BFIs’ activities in the secondary share market where they have been making short-term investment and creating demands.
Similarly, the NRB has directed the BFIs not to charge any penalty or fines for the period of the lockdown and seven days after the restrictions were lifted.
It has also barred them from issuing any notice for loan recovery and auction of collateral.