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Integrated Safeguards Data Sheet (Negotiation Stage) 
Section I - Basic Information 
Date ISDS Updated: 12/19/2003 
A. Basic Project Data 
(from PDS) 
I.A.1. Project Statistics 
Country:
 NEPAL 
Project ID:
 P084219 
 
Project:
 Financial Sector Restructuring Project 
Task Team Leader:
 Simon C. Bell 
Authorized to Appraise Date:
 November 15, 2003 
IBRD Amount ($m):
  
Bank Approval:
 February 24, 2004 
IDA Amount ($m):
 75.5
            
 
Managing Unit:
 SASFP 
Lending Instrument:
 Specific Investment Loan (SIL) 
 
Status: 
Lending 
Sector:
 Banking (100%)
   
Theme
: 
State enterprise/bank restructuring and 
privatization (P) 
 
 
I.A.2.  Project Objectives (From PDS): 
 
The objective of this operation is to support the continuing efforts of HMGN to improve the financial sector in 
order to bring macroeconomic stability and promote private sector-led economic growth.  The proposed 
involvement is the second phase of a larger financial sector reform effort which would lead ultimately to a third 
and final phase of reform involving privatization of state owned commercial banks. Phase I involved bringing in 
three management consultant teams to: restructure and re-engineer the central bank; and reform the two 
commercial banks (Rastriya Banijya Bank – RBB and Nepal Bank Limited – NBL).  The proposed (Phase II) 
operation will assist in (a) right-sizing the two commercial banks through the implementation of Voluntary 
Retirement Schemes (VRS) reducing operating costs and making them viable propositions for privatization (b) 
(b) bringing in Sales Advisors to assist in bank privatization, (c) providing further assistance to a second phase of 
Central Bank re-engineering, and (d) supporting the continuation of professional management team up until the 
point of privatization of these two banks 
 
I.A.3. Project Description (From PDS): 
 
i. 
Support to Voluntary Retirement Schemes
: NBL and RBB have a total of 10,792 employees in the two 
banks. In order to right size the banks they have recently announced their individual VRS targeting a total 
reduction of  4,695 excessive workforce – retrenchment by  44 percent - at a cost of US$  66.4 mn/NPR 4.9 bn 
(Average of US$  14,133 per employee). The project will support retrenchment costs. 
 
ii. 
Hiring of Sales Advisors
: To help sell the banks to “fit and proper” investors at the completion of the bank 
restructuring process.  This could happen sooner or later depending upon the progress made by the two 
Management Teams in re-engineering these two banks and/or the potential interest by outside parties in 
purchasing these institutions. Their role would be to prepare a sales prospectus for the banks, undertake a road 
show to sell these institutions and take them through to the point of privatization. The project will support this 
component. 
 
iii. 
Phase II of ongoing NRB re-engineering:
 To build upon the progress made to date at the Central Bank 
under the existing Financial Sector Technical Assistance (FSTA) credit, further assistance should continue in 
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the areas of:  (a) human resource re-engineering; (b) accounting support; (c) bank supervision and regulation 
and that, in addition, support should be provided for (d) Information Technology (IT) up-gradation. 
 
iv. 
Continuing Management Team Support:
 
 
Whereas the Management Teams in the two banks are currently 
working on a two year plus one (2+1) contract – privatization could feasibly take longer than this to achieve.  
Reverting to poor management before privatization would result in a loss of the good investment which has 
taken place so far in these banks.  Consequently, this component of new support is intended to take the banks 
from the end of the third year of the Management Team contracts through to full privatization – without any 
breaks.  Given the uncertainty of this time period, the estimate for this component will need to be adjusted as 
the banks get closer to privatization. 
 
I.A.4. Project Location: (Geographic location, information about the key environmental and social characteristics 
of the area and population likely to be affected, and proximity to any protected areas, or sites or critical natural 
habitats, or any other culturally or socially sensitive areas.) 
 
There are no environmental issues related to this operation– but there is a possibility of  social consequences  
arising from the implementation of the Voluntary Retirement Scheme.  The VRS  will be implemented 
nationwide as NBL and RBB have more than 200 branches throughout the country.
   
 
B. Check Environmental Classification: 
 
C (Not required) 
 
C. Safeguard Policies Triggered (from PDS) 
(click on 
 for a detailed description 
or
 click on the policy number for a brief description) 
 
Policy Triggered 
 
Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) 
No 
 
Natural Habitats (OP 4.04, BP 4.04, GP 4.04) 
No 
 
Forestry (OP 4.36, GP 4.36) 
No 
 
Pest Management (OP 4.09) 
No 
 
Cultural Property (OPN 11.03) 
No 
 
Indigenous Peoples (OD 4.20) 
No 
 
Involuntary Resettlement (OP/BP 4.12) 
No 
 
Safety of Dams (OP 4.37, BP 4.37) 
No 
 
Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) 
No 
 
Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)* 
No 
 
Section II - Key Safeguard Issues and Their Management 
D. Summary of Key Safeguard Issues
. Please fill in all relevant questions. If information is not available, 
describe steps to be taken to obtain necessary data. 
 
II.D.1a. Describe any safeguard issues and impacts associated with the proposed project. Identify and describe 
any potential large scale, significant and/or irreversible impacts. 
 
The project will have positive social impacts by protecting the small depositors who are likely to be hurt if a 
banking crisis developed. Worker retrenchment will be tracked with a social assessment, tracer and tracking 
surveys – to assess the  impact of the Voluntary Retirement Schemes to be implemented in the two banks. .  
 
 
II.D.1b. Describe any potential cumulative impacts due to application of more than one safeguard policy or due 
to multiple project component.  
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None.
 
 
II.D.1c Describe any potential long term impacts due to anticipated future activities in the project area. 
 
None. 
 
II.D.2. In light of 1, describe the proposed treatment of alternatives (if required) 
 
Not applicable. 
 
II.D.3. Describe arrangement for the borrower to address safeguard issues 
 
Technical assistance will be provided under the project to assess social impacts arising as a result of worker 
retrenchment (on a voluntary basis) in the two banks.   The consultants  made  an  assessment of training and 
counseling as a sub-component of the Project. After undertaking considerable due diligence initially in October 
2003, and then again in November,2003 as part of the appraisal mission, several areas of concern arose which 
resulted in the decision by the project team  to drop the training and counseling component of the project.  The 
reasons included: (1) the lack of government buy-in for the component which raised the issue of whether the 
project team was being truly “client responsive”; (2) the absence of an effective on-the-ground agency with the 
ability to handle the complexity of this component; and (3)  the absence of support by bilateral partners and 
international NGOs (DFID and GTZ) for this component.  Most importantly, the retirees themselves, many with 
second jobs while working for the bank, are not considered the poor or the vulnerable groups in Nepalese 
society.  By Nepalese standards, the employees of these two public sector banks are relatively well off and, 
during meetings with and without union representation, RBB and NBL employees did not view positively the 
training and counseling component. At the request of HMGN  this component has been dropped from the project. 
 
Nonetheless, in an effort to learn about the effects of retrenchment and discontinuation of employment in Nepal, 
two surveys  will be carried out as part of this project.  An exit/retraining survey will provide vital information 
on the attributes and profile of all staff retiring from NBL and RBB.  A second, more long term, tracking survey 
will be conducted among a smaller sub-sample of these retiring workers to track their progress in their post- 
retirement lives so that future programs can be adequately adapted to meet the special needs of this sub-group of 
retiring ex-state owned enterprise workers.  The Bank has been in contact with DFID concerning the 
Exit/Retraining Survey and the subsequent tracking survey and there is an agreement in principal that the UK 
Government will fund this survey work. 
 
The project team has identified MARG Nepal, a subsidiary of ACNielsen based in Kathmandu, as the most 
appropriate research agency to conduct and analyze both surveys.  MARG Nepal is a large multidisciplinary 
research and consultancy agency which is registered with the Ministry of Commerce (Nepal) and with the Bank 
in the South Asia region.  MARG is experienced with handling large studies in urban and rural settings, in a wide 
range of subject areas (health practices, corruption, poverty alleviation opinion polls) for agencies such as the 
United Nations, DFID, and Transparency International 
 
II.D.4. Identify the key stakeholders and describe the mechanisms for consultation and disclosure on safeguard 
policies, with an emphasis on potentially affected people. 
 
The key stakeholders include HMGN, potential buyers of the banks to be privatized, existing private 
shareholders of NBL, retrenched workers (under VRS), the unions representing the workers, the management of 
the bank  and small depositors.   
 
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The project has conducted a participatory process that involved affected parties and their representatives and, as 
a result of this undertaking, has established that there is no demand for a training and counseling component or 
that such a component would serve a useful purpose at the current time.  Formal and open consultations were 
held with the affected parties.  A social assessment of the  training and counseling component was carried out 
with the conclusion that it was not needed.  Extensive discussions were held with the unions, focus groups and 
others – by the Management Teams in the banks, the Appraisal Mission team members, and a social consultancy 
consultant prior to that – to ascertain interest.  It is clear that there is very little interest from the workers or the 
Government for training and counseling.  The team has, nonetheless, undertaken extensive due diligence on this 
issue. 
 
 
 
E. Safeguards Classification
 (select in SAP).
 Category is determined by the highest impact in any policy. 
Or on basis of cumulative impacts from multiple safeguards. Whenever an individual safeguard policy is 
triggered the provisions of that policy apply. 
 
 
[   ] 
S1. – Significant, cumulative and/or irreversible impacts; or significant technical and institutional risks in 
management of one or more safeguard areas  
[   ] 
S2. – One or more safeguard policies are triggered, but effects are limited in their impact and are technically 
and institutionally manageable 
[X   ] 
S3. – No safeguard issues 
[] 
SF. – Financial intermediary projects, social development funds, community driven development or similar 
projects which require a safeguard framework or programmatic approach to address safeguard issues.  
No safeguard policies are triggered by this operation. The social assessment is being done not because any 
safeguard policy is triggered. 
F. Disclosure Requirements Not applicable, as no safeguard policy is triggered 
by this operation.   
Environmental Assessment/Analysis/Management Plan:  
 
Expected
 Actual
  
Date of receipt by the Bank 
 
 
 
Date of “in-country” disclosure 
 
 
 
Date of submission to InfoShop 
 
 
 
Date of distributing the Exec. Summary of the EA to the Executive 
Directors 
(For category A projects) 
  
 
Resettlement Action Plan/Framework:
  
 
Expected
 Actual
  
Date of receipt by the Bank 
 
 
 
Date of “in-country” disclosure 
 
 
 
Date of submission to InfoShop 
 
 
 
Indigenous Peoples Development Plan/Framework:  
 
Expected
 Actual
  
Date of receipt by the Bank 
 
 
 
Date of “in-country” disclosure 
 
 
 
Date of submission to InfoShop 
 
 
 
Pest Management Plan: 
 
Expected
 Actual
  
Date of receipt by the Bank 
 
 
 
Date of “in-country” disclosure 
 
 
 
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Date of submission to InfoShop 
 
 
 
Dam Safety Management Plan:  
 
Expected
 Actual
  
Date of receipt by the Bank 
 
 
 
Date of “in-country” disclosure 
 
 
 
Date of submission to InfoShop 
 
 
 
  
 
 
 
If in-country disclosure of any of the above documents is not expected, please explain why.  
 
EA is not applicable to the proposed project.
 
 
Signed and submitted by 
 
 
Name
 Date
 
Task Team Leader: 
Simon C. Bell 
 
Project Safeguards Specialists 1: 
Asif Faiz (environmental issues) 
 
Project Safeguards Specialists 2: 
Nina Bhatt (social issues) 
 
Project Safeguards Specialists 3: 
 
 
 
 
Approved by:
 
Name
 Date
 
Regional Safeguards Coordinator: 
Frederick Edmund Brusberg 
 
 
 
Sector Director 
Joseph Del Mar Pernia