KATHMANDU: Following a revision to a unified directive on Thursday, the Nepal Rastra Bank (NRB) has issued a new rule permitting banks and financial institutions (BFIs) to issue perpetual non-cumulative preference shares as a way of raising extra capital. However, in order to use this option, BFIs must meet 12 certain criteria.
According to the amended directive, BFIs opting to issue these shares must establish a predetermined payment period, and only institutional buyers are permitted to purchase such shares. Dividends to shareholders can only be distributed from profits earned in the current fiscal year, excluding funds from reserve profit accounts or other sources.
To issue these shares, commercial banks must have a primary capital adequacy ratio of at least 8.5 percent. This change comes at a critical moment, as many banks struggle to fulfill the NRB's capital adequacy standards, and the new provision is likely to help them strengthen their capital bases.
