NRB directive to check IPO `fake

Better late than never. To check the ‘fake oversubscription' of financial institutions' initial public offerings (IPOs), Nepal Rastra Bank (NRB), the regulatory authority of the financial institutions, has issued a directive for them. The central bank has suspected that the financial institutions are playing foul under its nose taking the advantage of loopholes in the NRB's regulations.

"The financial institutions alongwith the chief operating officer (CEO) personally, will be fined if they fail to maintain the prescribed capital adequacy ratio," Krishna Bahadur Manandhar, acting governor of the central bank, said adding that the CEO will be fined Rs 1,00,000 and the financial institution has to pay interest. "If the financial institution exceeds the resource mobilisation cap, it will also be charged interest on daily basis as a fine," he said. "Those financial institutions that fail to maintain enough capital adequacy ratio — even a single month in a fiscal year — cannot distribute cash dividend and bonus shares at the end of the fiscal year," Manandhar said, adding that it will be applied form October 17.

Recently, public are losing the appetite for IPOs due to various scams in the capital market. Securities Board of Nepal (Sebon), the capital market's regulator, had a month earlier, uncovered a huge IPO scam that involved around eight billion rupees.

The Employment Promotion and Development Bank (EPDB) had received more than 5,00,000 applications amounting to over eight billion rupees, an oversubscribed by 66 per cent. However, the eight billion rupees claimed to be collected was not the real money and the collection of cash did not exceed half-a-billion. Until now, the oversubscribed amount used to be only in the papers not in real cash term, but the central bank is planning to tighten the issue managers as well.