In order to receive dividends, the share of founder shares should be reduced to at least 25 percent
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Now, the founder shareholders who have more than 25 percent of the paid-up capital in microfinance financial institutions of 'D' category will not get dividends. In order to receive dividends, they will have to reduce their share of founder shares to at least 25 percent.
The National Bank has made this arrangement through the 'Procedures for Granting Consent to Publishing Financial Statements and Approving Dividends for Annual General Meetings of Banks and Financial Institutions, 2082' issued by the National Bank on Wednesday. The National Bank has issued a new procedure replacing the procedure of 2077. This arrangement was already included in the Banks and Financial Institutions Act (Bafia). The same arrangement has now been included in the procedure by the National Bank.
"In the case of D category organizations, the above-mentioned limit of 25 and 10 percent can be invested respectively, the founder shareholders who hold the founder shares will be ordered to withhold the proposed cash dividend and bonus share distribution until the specified limit is maintained," said the procedure. The Rastra Bank has also stated that the mentioned investment limit is not applicable when the Government of Nepal, Nepal Rastra Bank and banks and financial institutions invest in subsidiary companies as founders. While investing in the founding shares of any one bank and financial institution, a maximum of 15 percent of the paid-up capital and a maximum of 1 percent of the paid-up capital in other banks and financial institutions remain in place.
The Rastra Bank has also asked the founders who have converted from non-governmental organizations that deal in financial mediation to become microfinance institutions to maintain the specified investment limit within five years of starting financial transactions. There is also a provision in the procedure that non-national development banks and finance companies can declare and distribute cash dividends only by maintaining a primary capital ratio of 6.5 percent and a capital adequacy ratio of 11 percent after offering cash dividends.
According to the existing Nepal Financial Reporting Standards (NFRS), the 'adjusting events' up to the date of approval for issuance of financial statements by banks and financial institutions can be adjusted in the financial statements of the previous financial year. However, for the purpose of declaring dividends, the National Bank has made an arrangement that generally within 45 days from the end of the financial year and based on the profit and loss account that is adjusted for those that have been certified as 'adjusting events' by the external auditor, the Rastra Bank has made arrangements to grant dividend approval. Banks and financial institutions now have the facility to include the recovered loans in the profit and distribute dividends from them within 45 days of the end of the financial year.
However, in the case of adjusting the loan loss arrangement repayment amount, there is a provision in the procedure that the loan loss arrangement amount remaining on that loan can be adjusted after the related organization confirms that the loan has been repaid from the sale of the mortgaged property and the debtor's internal cash flow.
If the paid-up capital of the organization involved in the merger or acquisition is less than the total amount of the paid-up capital of the organizations involved in the merger or acquisition, there is also a provision in the procedure that the difference in the paid-up capital (savings) should be accounted for in the capital reserve fund and no approval will be given to distribute cash dividends to the shareholders from such amount.
