In April the government finally decided that it would divest some of its holdings in the Bank of Bhutan (BoB). Divestment has been held up for more than two years because of a tussle between the government and the RMA.

Under the RMA's regulations, all banks in Bhutan must become public limited companies. Accordingly, the BoB was meant to float its shares in an initial public offering (IPO) but did not do so, despite reminders from the Royal Monetary Authority (RMA, the central bank) over the last two years. The BoB is the country's oldest and biggest bank, set up in 1962 (before the establishment of the central bank) as a joint venture between the State Bank of India (SBI, a commercial bank owned by the Indian government, which held a 40% stake) and the government of Bhutan (with a 60% stake). Subsequently, the government increased its shareholding to 80%, while SBI's share fell to 20%.

The RMA wanted the BoB to float about 30% of the government's holding, which amounts to about 24% of the bank's total shares. Under this plan, the government would retain a 56% stake. However, the Ministry of Finance and several members of parliament wanted the BoB not to go public at all, citing provisions in the Public Finance Act, which state that the government's share in a state-owned enterprise would not be sold without the express written approval of the cabinet. The RMA argued that the Financial Institutions Act empowers it to regulate the circumstances and manner of the licensing of banks.

Now settling the matter, in a letter dated April 4th and addressed to DHI, which owns the government's holdings in the bank, the finance ministry has stated that it has no objections to the divestment of government shares worth up to 25% of the BoB's total paid-up capital. According to the RMA, all preparations for the divestment have been completed, and the stake sale is expected to take place on July 1st.

Meanwhile, the BoB has been paying a penalty of Nu5,000 (US$110) a day to the RMA since November 10th 2010, after it failed to meet a final November 5th deadline to submit its prospectus for the IPO.