Nepal Rastra Bank (NRB) has fixed the minimum paid-up capital requirement for cooperative banks at Rs 2.50 billion.
Issuing a directive on Monday to institutions carrying out limited banking transactions, the central bank enforced the provision for cooperative banks operating in the country. The required paid-up capital must be raised exclusively through the issuance of ordinary shares.
Under existing law, NRB is authorized to regulate, inspect, and supervise cooperatives with transactions exceeding Rs 500 million. This includes the National Cooperative Bank, the only institution in this segment permitted by NRB to conduct limited banking operations.
According to the directive, cooperative banks must maintain primary capital equivalent to at least four percent of their risk-weighted assets. Primary capital includes paid-up capital, proposed bonus shares, reserve funds, retained earnings or losses, and independently established funds without specified purposes.
However, goodwill, deferred tax assets, and investments in shares and securities of institutions prohibited by NRB must be deducted while calculating primary capital. Loan loss provisions, asset revaluation funds, and non-banking assets may be counted as supplementary capital.
The directive further requires cooperative banks to maintain total capital funds equal to at least eight percent of their risk-weighted assets. Banks failing to meet the minimum capital requirement will be barred from distributing dividends. If capital funds fall below 75 percent of the prescribed threshold, NRB may classify the institution as problematic.
Additionally, cooperative banks will be required to classify loans and maintain loan loss provisions in line with the standards applied to other banks and financial institutions.
