Nepal Rastra Bank’s policy to encourage merger between bank and financial institutions seems to be paying off. The latest merger inked on February 1 between NIC Bank and Bank of Asia, both ‘A Class’ commercial banks, shows just that. This merger will create a bigger capital base and infrastructure for the new entity, which in turn would help serve the clients better and lend strength to the nation’s fledgling banking industry. 

As of now, any individual bank’s lending capacity is far from being impressive. The banks are not able to finance cost-intensive projects. For business and commerce to intensify and industries to grow, a strong banking system with financial depth is a prerequisite. It’s heartening that the country has a plethora of banks. The only problem is that they lack capacity and that is a big drawback. Institutional capacity and strong capital base are the fundamental parameters for the banking industry the world over. And, Nepali banks will have to do the catching up before they are taken seriously both within and outside the country. 

A merger of this kind where two commercial banks rated highly for their institutional and financial strengths are merging helps the industry in a big way. Now, the new entity can finance even more cost-intensive projects. This is good news for the industry and the economy of the country. Industrial development has not taken off in the country as yet but with a more stable political environment, this is likely to begin soon. And, for that to begin, banks need to be in a position to drive and sustain such growth, which basically means they need to have the institutional capacity and capital base of a different level, something perhaps unimaginable now. 

But as they say, take a step at a time and take it in the right direction. This latest merger of two commercial banks is surely such a step – taken in the right direction. For Nepal Rastra Bank (NRB) and particularly its Governor Dr Yuvaraj Khatiwada, who is said to have been pursuing the merger policy aggressively, this is a big morale-booster. We hope NRB will continue with its merger policy with the same gusto and give us a cleaner and more reliable banking industry in the country.