Chapter-10 Provisions Relating to Merger or Acquisition of Banks or Financial Institutions

Chapter-10 Provisions Relating to Merger or Acquisition of Banks or Financial Institutions

 

69. Banks or Financial Institutions may be Merged or Acquisitioned: (1) A bank or financial institution may be merged with another bank or financial institution or a bank or financial institution may acquire another bank or financial institution by fulfilling the procedures prescribed by this Act and the Nepal Rastra Bank Act.

2. A class “D” financial institution may be merged with or such institution may acquire another institution of the same class:

. Provided that, an infrastructure development bank and a bank or financial institution may not be merged into each other and none of them may acquire the other.

3. Notwithstanding anything contained elsewhere in this Chapter, in cases where any of the following circumstances in regard to any bank or financial institution is found from an Inspection and Supervision Report of the Rastra Bank, the Rastra Bank may order by giving the reason thereof that any of its assets, liabilities, and business of such bank or financial institution merge or be merged into another bank or financial institution:-

a. The capital fund is inadequate or the financial position has been deteriorating for the last three years,

b. An act committed causing adverse effect on depositor’s interests and liabilities towards depositors or such a situation is existing,

c. It is necessary to enhance the competitive capacity at the national and international level for stability, development and promotion of the financial system.

4. Notwithstanding anything contained elsewhere in this Chapter, if any of the following circumstances is regard to a bank or financial institution is found from an Inspection and Supervision Report of the Rastra Bank, the Rastra Bank may, by giving the reason thereof, order such a bank or financial institution to acquire or cause to be acquired another bank or financial institution:-

a. In cases where more than one bank or financial institution belonging to single group of persons, firms and companies are in operation and there is an unhealthy financial relation,

b. In cases where the rights and interests of the depositors, ordinary shareholders, and other costumers could not be protected due to the negative impact, if the bank or financial institution is operated in the status quo,

c. In cases where system-based risks are increased and the licensed institution is unable to pay its liabilities,

d. In cases where shares have not been issued in the ordinary group within the prescribed time, the issued shares have not been sold or subscribed, or the prescribed minimum proportional paid up capital has not been met,

e. In cases where the bank or financial institution is subjected to actions of rapid reforms for three times or more or good governance has become weak due to arising of frequent disputes in the Board of Directors of the bank or financial institution.

5. While issuing an order by the Rastra Bank pursuant to Sub-Sections (3) or (4) for merger or acquisition of the bank or financial institution, it may specify the procedures thereof in such an order.

70. Application to be submitted for Merger or Acquisition: (1) In cases where any bank or financial institution wishes to merge or to be merged into another bank or financial institution, two or more banks or financial institution/s so wishing to merge or be merged shall decide the matter from their respective Board of Directors and submit a joint application to the Rastra Bank for getting approval in principle stating the following matters:-

a. Necessity of and justification for merger of the bank or financial institutions and general projection of the impact it is likely to cause in the banking and financial sector and fiscal system,

b. Latest auditor’s report of the bank or financial institutions wishing to merge or be merged including the audited balance-sheets, profit and loss account, cash flow statement and net worth and so on,

c. Arrangements made for protection of the interests of the creditors of the bank or financial institutions wishing to merge or be merged,

d. Actual report of the movable and immovable assets of the bank or financial institutions wishing to be merged and also period of repayment of liabilities,

e. Details of the management of employees of bank or financial institutions wishing to merge or to be merged,

f. Approval process under the prevailing laws concerning company and securities for the purpose of merger;

g. Preliminary agreement concluded for merger by the institutions;

h. Other details as specified by the Rastra Bank.

2. In cases where any bank or financial institution wishes to acquire another bank or financial institution, the concerned two or more banks or financial institutions shall decide the matter from their respective Board of Directors and then submit a joint application to the Rastra Bank for getting approval in principle stating the following matters:-

a. Necessity of and justification for the acquisition of the bank/s or financial institution/s and general projection of the impact it is likely to have in the banking and financial sector and fiscal system,

b. Latest auditor’s reports of the principal institution and of the target institution(s) including the audited balance-sheets, profit and loss account, cash flow statement and net worth and so on,

c. Details of the management of the employees of the principal institution and targeted intstiution,

d. Approval process under the laws concerning companies and securities,

e. Preliminary agreement concluded for acquisition of the bank or financial institution,

f. Other details as specified by the Rastra Bank.

3. The Rastra Bank shall conduct an inquire into the application submitted pursuant to Sub-Section (1) or (2) and in the course of the inquiry, the Rastra Bank may hold discussions with the applicants as and ask for additional documents as may be required.

4. If the Rastra Bank is satisfied upon inquiry carried out pursuant to Sub-Section (3), that the merger or acquisition would not have any negative impact on the development of banking and financial system of the nation and in fair competition and compliance with the prevailing laws, it may grant approval in principle for further continuation with the process of merger or acquisition and while giving such approval, it may specify additional conditions or issue additional directives.

71. Provisions Concerning Valuation of Assets and Liabilities:(1) Upon getting approval in principle of merger of bank/s or financial institution/s pursuant to Section 70, such banks or financial institutions shall appoint, with mutual consent a person, firm, company or institution that is at least capable for carrying out auditing of a banks or financial institutions for valuation of their respective assets, liabilities, and transactions and information thereof must be furnished to the Rastra Bank:

Provided that, banks or financial institutions may carry out such valuation to be conducted before submitting an application to the Rastra Bank.

2. Upon getting approval in principle to acquire a bank or financial institution pursuant to Section 70, the targeted institution shall get its assets, liabilities and transactions audited by an auditor appointed by the General Meeting or by the Board of Directors under the authority of the General Meeting.

3. An acquiring institution may also carry out comprehensive valuation of the assets and liabilities of the target institution.

4. If the Rastra Bank does not find actions of Valuator appointed pursuant to sub-Section (1) or (2) reliable, it may give an order to the concerned bank or financial institution to remove him/her and appoint another valuator.

5. The concerned bank or financial institution shall determine by the terms and conditions of services of the valuator.

6. While valuating the assets, liabilities, net worth, and overall transaction by the valuator, it has to be carried out according to the established norms, basis and procedures.

7. The Rastra Bank may issue the necessary directives as to the methods of valuation, basis of valuation and the scope thereof.

72. Provisions Relating Agreement: Unless otherwise ordered by the Rastra Bank pursuant to this Act, the banks or financial institutions having obtained approval in principle for merger, amalgation or acquisition shall enter into an agreement stating the following matters:-

a. Provisions concerning the protection of the interests of depositors, creditors and shareholders,

b. Provisions concerning the valuation system and matching of assets and liabilities of the banks or financial institutions,

c. Provisions concerning management of investment and transaction, details of the inter-agency ownership and inter-agency transactions, details of guarantee and assurance, management of non-banking transactions, proper management of assets and liabilities,

d. Merger, merging and acquisition processes, the time to be taken and costs to be incurred,

e. Operation and management structure and the name list of Directors,

f. Arrangement for adjustment of level of employee of the bank or financial institution obtaining approval in principal for merger of acquision or of the principal institution and targeted institution and terms and conditions of services.

g. Details of the shareholders with substantial ownership and of other shareholders,

h. If the bank or financial institutions to be merged or acquired as a new bank or financial institution, the name, Memorandum of Association and Articles of Association, capital structure, restructuring and class thereof,

i. In the case of a foreign bank or financial institution, a letter of consent from the concerned regulating agency,

j. In the case of a foreign bank or financial institution, matters as to whether or not to acquire the business of a bank or financial institution located in Nepal, or if the entire business of such a bank or financial institution is to be sold in Nepal, matters relating thereto,

k. Grievance handling system of stakeholders,

l. The prevailing laws and process to be initiated for its compliance,

m. Other necessary details specified by the Rastra Bank.

73. Provisions Relating to Approval: (1) Banks or financial institutions getting approval in principle for initiating merger or acquisition process shall adopt special resolutions from their respective General Meetings and shall submit a joint application to the Rastra Bank having attached therewith the agreement referred to in Section 72 and other matters specified by the Rastra Bank for final approval.

2. While carrying out an inquiry into the application submitted pursuant to Sub-Section (1), the Rastra Bank, if it deems necessary, may ask for additional information or documents from the concerned bank or financial institution.

3. While carrying out an enquiry pursuant to Sub-Sections (1) and (2), the Rastra Bank may give due consideration to the facts that whether or not the merger of any bank or financial institution would create a healthy competition in the financial sector of the country, whether or not monopoly or restricted practice of any bank or financial institution may have; whether or not serious adverse impact would have cause on the overall banking and financial system on financial market and depositors and also having conducted fit and proper test of the promoter/s who may has/have significant ownership in the institution to be created after the merger, the Rastra Bank may grant final approval to the banks or financial institutions for merger with each other or acquisition by specifying terms and conditions or limitations.

4. The Rastra Bank shall, if it does not find to be appropriate to grant approval pursuant to Sub-Section (3), notify the concerned bank or financial institution along with the reasons thereof within forty five days.

5. In cases where it is difficult for the institutions that have obtained approval pursuant to Sub-Section (3) to comply with the provisions of this Act and directives of Rastra Bank by virtue of such a merger or acquisition, the Rastra Bank may grant exemptions as specified by it on the basis of necessity and rationality.

6. Other provisions concerning merger and acquisition shall be as specified by the Rastra Bank.

74. Transactions may be Acquired: Any branch, office of any bank or financial institution or any property or transaction thereof, with the prior approval of the Rastra Bank may be acquired by, or transferred to, any other bank or financial institution with mutual consent.