Policy of Haste

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Policy of Haste

The latest volatility in the financial market prompted the government to form a high-level panel under the coordination of Nepal Rastra Bank’s deputy governor, which submitted its 58-points recommendation to the finance minister on December 20. 
Some controversial recommendations seem to be made due to the pressure created by the agitation of a group of stock investors. The recommendation to provide broker license to commercial banks is one such example. Allowing commercial banks to also operate as brokerage firms is a debated issue as it carries several negative aspects. Currently, the share of banking sector companies in Nepal’s stock market is so huge that providing stock broker license to banks and/or their subsidiaries poses risks of moral hazards. As the online share trading has already started, it will be pragmatic if the banks are allowed to provide brokerage related services to only those investors of remote areas of the country, where online trading is not feasible for the time being.  
The recommendation to allow IPO issuance only if the credit rating of the firm is of grade 4 or better is also erroneous. This may start malpractices. Money and other types of influences can be used to get higher grades from the rating agencies. More importantly, what will be done about companies that are legally required to issue shares to the public but can get only grade 5 rating? Will the Board members of such companies be punished? There is no answer to it?
Establishing “investors’ protection fund” is another unreasonable suggestion. Though its areas are not clear currently, it seems the proposed fund can be used for securing the investments of the investors. Such a move will be against the principles of the free market economy. The price movement of stocks depends on demand and supply of shares, profit/loss of listed institutions, macroeconomic outlook of the country and fluctuation in bank lending rates, among other factors. Informed investors are generally aware of the risks associated with the stock market investments. 
In Nepal, strikes have become a common tool for interest groups to forcefully incorporate their demands in the policies of the government. Now, this has started to happen in the capital market too. But such practices are harmful to the healthy growth of the market. 
The report also mentions promoting private equity fund, venture capital, angel fund and crowdfunding. It is good that regulators and government bodies have started to recognise alternative financing. Nevertheless, it is not clear how such activities will be promoted when there is no legal framework for alternative finance.  
Given the past experiences, it is likely that a large number of recommendations prescribed by the committee will remain unimplemented. Several high-level panels in the past have submitted recommendations related to debenture market, capital gains tax and margin trading of shares, among others. Only a few have been incorporated in the government policies. In a country where the government’s decisions aren’t implemented, it is doubtful that recommendations by a committee will carry much weight.
Madan Lamsal

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