| September 25, 2018

Govt plan to establish infra bank a mere pipe dream

KATHMANDU, June 2: Thought the commitment to form an infrastructure bank has been featuring in budget speech of almost every government for nearly a decade, there has not been any substantial progress toward establishing such bank.

The government has been making such commitment in since 2007/08.
Like previous governments, the incumbent government has also announced to establish infrastructure bank through the budget for Fiscal Year 2016/17 tabled in the parliament on Saturday.

In his budget speech, Minister for Finance Bishnu Paudel said that the bank will be established under public-private-partnership model to increase investment in infrastructure sector.

The private sector has been long demanding formation of such bank to finance mega infrastructure projects in the country. The government plan, however, is yet to realize.

Nepal Rastra Bank (NRB), which issues license to open bank and financial institutions (BFIs), has currently issued moratorium on licensing new bank. The central bank has instead pursued a policy of reducing the number of BFIs by encouraging merger and acquisition.

Bankers say that the existing legal framework does not allow the central bank to issue license to such specialized bank.

However, the new bill to make amendment to the Bank and Financial Institution Act has proposed a new provision that pave the way for formation of 'Infrastructure Development Bank' that can, among others, finance development projects, make equity investment in companies that implement development projects, issue domestic and foreign currency denominated bonds to finance development projects, and mobilize resources for infrastructure projects.

Bankers say that endorsement of the bill will pave the way for formation of infrastructure bank. "Earlier, there was no legal foundation for the central bank to allow formation of such specialized bank. The amendment will pave the way for the establishment of such bank," Maha Prasad Adhikari, former NRB deputy governor, told Republica.

NRB, through its Monetary Policy for the current fiscal year, has said that a special policy provision will be made in order to provide the license a national level infrastructure bank. The central bank has also set a minimum paid-up capital of Rs 20 billion for such bank.

The government has been mulling over forming such bank since long as existing BFIs lack capacity to finance mega projects due to liquidity mismatch. Liquidity mismatch refers to the position of a bank whereby the deposits that it holds are for a shorter period while the maturity of loans that it floats is for a longer period.

However, legal provision alone does not ensure that the bank will come into operation as it needs huge capital, according to experts. Though the government has announced a public-private-partnership model to open such bank, many doubt that government will be ready to pour investment in such specialized bank.

"The infrastructure bank needs big investment to finance mega projects. It is an ambitious plan of the government which has been reluctant to make commitment of Rs 100 billion to set up Economic Rehabilitation Fund," an executive director of NRB told Republica.

The plan to set up Economic Rehabilitation Fund for providing relief to the private sector battered by the Tarai turmoil is in limbo as the government has failed to make adequate investment. Private sector has already made commitment to contribute Rs 30 billion in the fund.

The government recently made commitment to invest only Rs 5 billion, leaving the fund short of Rs 65 billion.
Sagar Ghimire

Ghimire is associated with Republica, English National Daily, since November 2013. He reports and writes on banking, financial, cooperatives, labor and foreign employment issues.


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