The Cabinet has directed Finance Minister Namgay Tshering to coordinate and lead the exercise of a strategic and effective merger of the National Cottage and Small Industry Development Bank Limited (NCSIDBL) and Bhutan Development Bank Limited (BDBL).
Cabinet Secretary Kesang Deki wrote to the minister conveying the directive on January 30.
The minister, after discussion with the boards of the banks, has to submit “a pragmatic merger proposal to the Cabinet”.
The directive comes after the Cabinet was not convinced through the joint response submitted earlier that the merger of the banks will bring about strategic benefits and achieve the intended goals.
Expressing full support for the amalgamation of two banks, the Cabinet, on December 8, directed the finance ministry that the merger proposal for the two banks will be kept on hold until a complete and comprehensive report on financial sector reform is submitted.
However, the Cabinet asked the ministry in consultation with the Royal Monetary Authority and financial institution reform team to submit their findings on the objective of creating NCSIDBL, the progress of CSI support through the bank, what the restructured BDBL would look like after the merger, and in providing support to the CSI sector at a low-interest rate in future.
The Royal Audit Authority in its NCSIDBL’s compliance report asked the finance ministry to reassess the relevancy of the bank and take appropriate interventions to address the issue of overlapping function between the NCSIDBL and the BDBL to curtail the avoidable and unwarranted cost centres.
“Most of the loan products of the NCSIDBL were similar to what is offered by the BDBL,” it added.
The authority also found that the bank’s operation was financially not viable as income was not able to cover the operating cost, hugely depending on the government’s equity injection.