The Bangladesh Bank yesterday directed non-bank financial institutions (NBFIs) to double their paid-up capital to Tk 50 crore from the existing Tk 25 crore.

The institutions will have to raise their capital by December next year, a circular issued by the central bank said.

To meet the deficit in their paid-up capital, the financial institutions can opt for such means as issuance of initial public offering (IPO) or right shares or bonus shares, the BB said.

“Even the NBFIs can examine the possibility of merger to raise their capital base,” the circular said.

The central bank in September sought the finance ministry's approval for raising the paid-up capital of the NBFIs to Tk 50 crore from the existing Tk 25 crore.

The BB took the move to help consolidate the capital base of the country's NBFIs in line with the Basel-II framework, which would come into effect from next year.

Basel-II accord is the latest version of risk-based capital standards set for banks worldwide.

Earlier, in a similar move the BB directed banks to double their paid-up capital to Tk 400 crore by next year.

The circular said the paid-up capital of the NBFIs should be increased to Tk 50 crore or the minimum capital reserved against their risk-based assets -- whichever is higher.

It also directed foreign companies operating in Bangladesh to maintain the same amount of paid-up capital at Tk 50 crore.

A BB senior official said at present the amount of paid-up capital of the NBFIs including risk-based assets is Tk 25 crore. He said only the paid-up capital would be less than Tk 25 crore.

Mafizuddin Sarker, chairman of Bangladesh Leasing and Finance Companies Association, told The Daily Star that 17 out of 29 NBFIs operating in the country have already raised their paid-up capital to Tk 50 crore.

“There will be no major problem for any company to increase its capital as per the directive of the central bank,” said Sarker, also the managing director of LankaBangla Finance Ltd.

However another BB official said: “Shareholders' equity constitutes only 23.5 percent of the total liabilities of NBFIs, revealing wide scope for the institutions to raise capital through IPOs rather than other high-cost funding."

The central bank in June 2003 had raised the minimum ceiling of capital for NBFIs to Tk 25 crore from the previous Tk 10 crore to make those operationally sound.

Of the NBFIs, one is state-owned, 15 are local (private) and the rest 13 are established under joint venture with foreign participation.

Currently 17 NBFIs are listed with the stock exchanges. The total amount of loan and lease of these institutions was nearly Tk 10,000 crore as on December 31, 2008.