April 20: Standard Chartered Bank, a foreign joint venture bank, has submitted its plan to increase its paid- up capital to Rs 8 billion as per the directive of Nepal Rastra Bank (NRB) even after distributing cash dividend. The central bank has received AGM Clearance by NRB after it committed increasing paid-up capital to Rs 8 billion by mid-July 2017.

“The bank has committed to increase the paid up capital by mid-July 2017, thus AGM needs not to postponed only because of cash dividend proposal,” says a NRB source. Previously, the central bank has directed commercial banks to raise their paid up capital to Rs 8 billion by mid-July 2017.

NRB had postponed AGM of Standard Chartered citing that the amount of the proposed cash dividend is high. The bank had proposed 15 percent bonus and 27.11 percent cash dividend at the AGM on February 9.  

For the second time, the bank had proposed 25 percent bonus share and 19.21 percent cash dividend on March 2. This time too, NRB disagreed to provide approval to AGM seeking commitment from the bank’s foreign partners in capital increment plan.

“Although all banks and financial institutions are equally treated, good institution should be given some preference,” says the source, adding, “NRB believes that a prestigious institution like Standard Chartered will stand on its commitment, thus the AGM clearance is granted.” NRB explains that the commitment of foreign partners holding 75 percent stake are treated as commitment of partners. According to the source, Standard Chartered has not chose merger option for capital increment but has planned to increase paid-up capital through the issuance of bonus and right shares.

“Cash dividend has not been completely forbidden, but cash dividend proposal of banks that are uncertain in increasing paid-up capitals will not be granted approval,” the source clarifies.  NRB says that Standard Chartered has been exempted on the ground of commitment from foreign partners on increasing paid-up capital. NRB further explains that other joint venture banks will not given approval on cash dividend proposal as they might u-turned on paid-up capital increase plan at the last moment.

Foreign Investors prioritise cash dividend as it is an immediate return for them.  Nepal is considered as risky region in terms of investment, thus foreign investors seek more return (cash dividend) here compared to other developed countries.