Preference shares to banks with less primary capital

Rastra Bank has introduced a new concept of unredeemable unsecured preference shares targeting such banks.

The central bank is going to allow the banks that have sufficient primary capital to issue debentures and preference shares that have to pay dividends only in the year of profit. In the integrated instructions issued by the National Bank on Wednesday, it is mentioned that the banks which are under pressure in capital fund can issue irredeemable unreserved preference shares.

According to the instructions of the National Bank, 12 different criteria have been set regarding the issuance of unredeemable unreserved preference shares. Generally, such preference shares are not converted into shares. But in the event that the bank is unable to operate, the National Bank has given the facility to convert it into ordinary shares.

Based on the risk assets of a bank, if the primary capital fund ratio reaches 5.125 percent, such preference shares can be changed as shares. When such ratio reaches 5.125 percent, such shares will have to be converted into ordinary shares for the purpose of calculating the loss.

Redeemable unreserved preference shares are called perpetual non-cumulative preferential shares in English. Perpetual means that the maturity period is not specified. Non-cumulative means that even if no dividend has been distributed in a year, there is no obligation to pay that year's dividend in other years.

It is arranged that only institutional investors can invest in such preference shares, and when distributing dividends, it should be done only from the profits of the current financial year through the profit and loss sharing account, and for this, no accumulated profit account or any fund can be spent.