Kathmandu. The Finance Committee under the House of Representatives has discussed the bill to amend the Bank and Financial Institutions Act (BAFIA), 2073. The committee discussed the provisions of the bill with experts in the banking sector.
During the discussion, former banker Parashuram Kunwar Chhetri said that the bill should appropriately manage the provisions related to the directors of banks and financial institutions, the provision for separating bankers and businessmen, and the age limit of bank directors. Similarly, suggesting that the BAFIA should include a provision related to opening an asset management company for the management of non-banking assets and bad loans of banks and financial institutions, he pointed out the need to make policy arrangements so that there should be no limit on the land auctioned as collateral by banks and financial institutions.
Former Executive Director of Nepal Rastra Bank, Laxmi Prapanna Niraula, said that appropriate arrangements should be made regarding the provisions in the bill separating bankers and entrepreneurs by seeking good practices from various countries and their relevance in the context of Nepal.
The bill to amend the said act was registered in the parliament in Chaitra 2080 BS. Important provisions, including giving legal recognition to the use of digital currency and digital banking, seeking clarity on the responsibilities of persons on the bank board of directors, and discouraging the tendency to take large loans from banks that are themselves shareholders, have been included in the bill.
Similarly, this bill is also expected to play an important role in making legal arrangements for the effective management and regulation of banks and financial institutions based on the national and internationally developed financial system, financial instruments, financial security, and financial risks.
Finance Committee Chairman Santosh Chalise said that this bill is not only related to the regulation and supervision of banks and financial institutions but also to the overall economy of the country. This bill has the potential to transform the financial sector. Therefore, the committee will proceed with the discussion with importance,” he said. Chairman Chalise also informed that 127 different amendments have been submitted to the bill by 22 members of the House of Representatives.
The new BAFIA is also important to utilize the changes in technology and to organize the financial jurisdiction of all three levels of government as mentioned in the existing law. Similarly, it is stated that the existing act is being amended to enhance the credibility of Nepal’s overall banking and financial system, strengthen the national economy and maintain stability, and organize the establishment, operation, management, regulation, and other functions of banks and financial institutions.
The BAFIA bill seeks to define ‘digital’ currency. “Digital currency should be understood as digital currency issued by Nepal Rastra Bank,” the bill states. Nepal Rastra Bank is currently studying digital currency.
Similarly, a new provision has been made in the bill to empower digital banks to conduct banking and financial transactions. “Subject to the BAFIA Act, other prevailing laws, articles of association and regulations, and the limits, conditions or instructions specified by the Rastra Bank, a digital bank may also conduct banking and financial transactions, including accepting deposits and disbursing loans, as specified by the Rastra Bank,” the bill states. While a digital bank is included in the definition of a bank, it is being made to consider the amount deposited electronically as a deposit.
The definition of ‘executive chairman’ in banks and financial institutions has been removed and only the provision of the chairman has been made. Similarly, it has also been proposed to change the definition of ‘relevant ownership’. “Relevant ownership means a situation where a person or organization jointly holds one percent or more of the paid-up capital of a bank or financial institution or can influence the management of the bank or financial institution due to share ownership,” the bill states. The existing BAFIA Act considers such a provision to be two percent.
The definition of a borrower of banks and financial institutions has also been proposed to be amended. “Borrower shall mean a person, firm, company or institution that takes a loan or holds a credit card issued by a bank or other similar instrument,” the bill states. Earlier, persons and companies that take credit card facilities were not included in the definition of borrower. The bill has added an additional provision to the definition of collateral. “Collateral shall mean the property provided by the borrower to the bank as security for a loan taken from a bank or financial institution.”
It is necessary to make provisions that a person who is a director of a bank or financial institution cannot become a director of an Infrastructure Development Bank, stating that it is necessary to make provisions that a person who is a director of a bank or financial institution cannot become a director of an Infrastructure Development Bank. In order to ensure representation of women among directors, the bill has made a provision that at least one woman must be appointed when appointing a director of a bank or financial institution that has a female shareholder. Similarly, if there is a provision in the existing act that at least one independent director can be appointed in a bank or financial institution, it has been amended to make a provision that ‘two independent directors, including at least one woman’ can be appointed.
The existing provisions regarding the tenure of directors of banks and financial institutions are also being amended through the bill. According to the existing act, there is a provision that a director can remain in office for a maximum of four years and can be reappointed and nominated. By amending it, a provision is being made that a director can be reappointed to the post of director for only one more term after the expiry of his term. After the proposed bill is passed by the parliament and implemented, a person who has not reached the age of 25 and has exceeded the age of 70 will not be allowed to be a director of a bank and financial institution. Although the existing BAFIA Act has set the minimum age to become a director at 25 years, it has not set a maximum age limit. RSS
According to the bill, if a person wants to become a director, the total commercial loan taken by him and his family, related companies or organizations in such a bank or financial institution cannot exceed one percent of the total paid-up capital. This provision is not in the existing BAFIA Act. It is being made in the new Act, stating that it is necessary to determine the limit of commercial loans taken by the relevant person or his family.
According to the bill, it is mandatory to hold a meeting at least once every month to make the meeting of the board of directors of banks and financial institutions regular. The bill has also been prepared to strictly implement the law related to the prevention of money laundering in banks and financial institutions.
There is a provision that one bank and financial institution is not allowed to invest in the securities of another bank and financial institution. However, in order to make the provisions related to bonds effective for investment in sectors such as agriculture, tourism, energy, and infrastructure that the government deems necessary, a provision is being made in the bill that allows investment in bonds.
Banks and financial institutions will not be allowed to provide any type of loan to a person affiliated with them or a person who owns one percent of the shares in any bank. However, the bill states that it will not be considered an obstacle to issuing collateral on 100 percent cash ‘margin’, declaring a person as an affiliated person against the collateral of the licensed institution’s own term receipts and debentures of the Government of Nepal or Nepal Rastra Bank, and providing household loans.
Similarly, a person who owns one percent of the shares in any bank and financial institution will not be allowed to work as a legal, revenue, accounting or financial management consultant, collateral appraiser or auditor of the bank or financial institution to which he is affiliated. Once the bill becomes an act and comes into force, all banks and financial institutions will have to prepare a list of persons who own more than one percent of the shares and submit it to Nepal Rastra Bank. Such a list must be submitted to the Nepal Rastra Bank within 35 days of the end of each fiscal year.
According to the law being drafted, banks and financial institutions will have to make a monitoring schedule and conduct mandatory semi-annual monitoring to determine whether the borrower has utilized the loan amount for the purpose for which it was granted. Although the existing act provides for such monitoring, it was not clear how often the monitoring would be conducted.
Similarly, the bill states that the Nepal Rastra Bank will conduct comprehensive inspection and supervision of companies established with the investment of banks and financial institutions in coordination with the concerned bodies. No single individual, firm, organization or company can invest a maximum of 15 percent of the total paid-up capital of any single bank and financial institution. Similarly, the bill also provides for the designation of a separate institution to deposit the proceeds from the sale and distribution of confiscated securities.
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