PNB JV’s merger bid in Nepal bounces

KATHMANDU - The bid by Indian public sector Punjab National Bank (PNB)’s joint venture in Nepal, Everest Bank Ltd (EBL), to merge with another Nepali bank thus creating one of the biggest financial institutions in the Himalayan republic has bounced due to stiff opposition by shareholders.

The EBL, in which PNB holds 20 percent share, has been forced to shelve its plan to merge with Nepal Investment Bank Ltd (NIBL), one of the best performing commercial banks in Nepal, even after signing a memorandum of understanding and informing the Nepal Stock Exchange.

Nepali promoters 50 percent and the general public the remaining 30 percent in EBL.

Hum Nath Gurung, assistant general manager of Everest Bank Ltd (EBL), confirmed to IANS that the bank’s annual general meeting, which concluded Thursday, decided not to merge with NIBL.

“One of the biggest concerns expressed by both (EBL and NIBL) boards was over the hefty tax that would be levied by the government once the merger came through,” Gurung told IANS.

“Though Nepal Rastra Bank (the banking regulator) says it encourages mergers, still, the Income Tax act seeks to levy a whopping 30 percent on the capital gain that results after the union.”

“Shareholders raised the example of a financial institution, Narayani National Finance, that was reportedly asked to pay a capital gain tax that amounted to more than two years’ profit,” Gurung said.

The NIBL staff has also been up in arms against the proposed merger. Since the two chairmen of the two banks signed the MoU, they had come to work wearing black bands as a mark of protest.

“There was a feeling of job insecurity,” Gurung admitted. “However, there may not have been job cuts since the merger would have led to expansion.”

This is the second time that EBL’s merger bid with NIBL failed. Talks had been held about three years ago as well.

The union would have been highly desirable from the point of view of business. While EBL, which started in 1994, has 37 branches and a capital of NRS 1,070 million, NIBL has 40 branches and a NRS 2,400 million capital.

Also, of the 29 commercial banks currently operating in Nepal, it is the second biggest both in terms of profit and business volume while EBL ranks fourth in profit and seventh in business volume.

There are also unconfirmed reports that PNB sought to hike its share in the merged entity to 30 percent.

Last year, in the other Indian joint venture in Nepal’s banking sector, the State Bank of India, raised its stake in Nepal SBI to a controlling 55 percent from the earlier 50 percent, after a Nepali shareholder, the Agricultural Development Bank, had to offload its shares following the NRB’s regulations not to cross-trade.

Gurung said there had been no written communications from PNB about a bigger share in the merged unit.

“Banking is becoming very competitive in Nepal,” the EVL official added. “Despite its small economy, Nepal has 29 banks with two more in the pipeline. Besides, there are 78 development banks, 79 financial institutions and more than 15,000 cooperatives. So mergers are needed badly.”

“However, a merger can’t be an overnight process. Also, it can’t be decided just at the top level. It needs the consent of all the stakeholders concerned.”

Had the bid succeeded, it would have been the first merger between banks in Nepal’s financial history.

In the past, EBL had also talked union with Kumari Bank and the Bank of Kathmandu but the talks proved inconclusive.

(Sudeshna Sarkar can be contacted at sudeshna.s@ians.in)