10 Major Amendments in BAFIA 2073

Why BAFIA 2073?

Bank and Financial Institutions Act 2073 (BAFIA 2073) is the umbrella Act of all the banks and financial institutions. The main objective of BAFIA is to strengthen the banking and financial system of the country and to promote the trust of the general public in the overall banking and financial system of the country. Similarly, it aims to protect and promote the rights and interests of depositors, provide quality and reliable banking and financial intermediary services to the general public through healthy competition among banks and financial institutions, minimize risks relating to the banking and financial sector, and the like. (see: 25 Major Highlights of BAFIA 2073)

Amendments on BAFIA 2073

Every law should be revised to be time friendly, acceptable, and applicable. Likewise, BAFIA has also been revised with updated laws and the dropping of outdated laws. Some of the major amendments of BAFIA 2073 are as follows:

1. Issued Capital for General Public and Employees (Chapter 3, Section  9)

• Every bank or financial institution shall set aside at least thirty percent of its total issued capital for subscription by the general public. The bank or financial institution may set aside a maximum of five percent of the shares so set aside for its employees. (BAFIA 2063)
• The bank or financial institution may set a maximum of 0.5 % of the shares from remaining so set for its employees.

2. Conversion of Promoters Shares into Public Shares

• BAFIA 2073 has also a provision which allows conversion of promoter shares into public shares after a lock-up period of 10 years (Chapter 3, Section 11, Subsection 4)
• Notwithstanding Clause 9 sub-section 1 and 2 Bank and Financial Institutions can convert its promoter shares into public shares after the commencement of 10 years with considering the situations of Capital Market, Banking, and overall financial sector. (Subject to NRB for prior approval)

3. Provision related to Board of Directors ( Formation )

• The Board shall consist of not less than five and not more than seven Directors. ( Chapter 4, Section  14) Conditions (Chapter 4, Section  15)
• More than one member of the same family is not eligible for BOD.
• In the case of Independent Directors person of his/her family who subscribed more than 1 % shares of concern BFI’s are not eligible for Independent Directors of BFI’s.
• The same person does not eligible for different BFI’s Board of Directors.

4. Provision related to Board of Directors (Qualification) ( Chapter 4, Section  16)

• Having minimum 5 years experiences of BOD of foreign or national Banks and Financial institutions,
• Or the working experience of 3 years at officer level of Nepal Government.
• Or minimum     Master    Degree Qualification in respective subjects prescribed by NRB.

5. Provision related to Independent Directors (Qualification) (Chapter4, Section17)

• For ‘A’ and ‘B’(National Level) Class BFI’s Graduated in respective subjects as prescribed by NRB.
• For ‘B’ (Other except National Level) and ‘C’ Class BFI’s Undergraduate in respective subjects as prescribed by NRB.
• For ‘D’ Class BFI’s qualification of Independent Directors as prescribed by NRB.

6. Provision related to Board of Directors

• Members of Parliament (MP) and Person having Constitutional Appointment are not eligible for Board of Directors and Chief Executive Officer (CEO) of BFI’s. (Chapter 4, Section 20)
• BOD from other licensed institutions which mainly deals with deposits and Insurance transactions are not eligible for BOD of BFI’s at the same time frame. (Chapter 4, Section 18, sub-section 5)

7. Qualifications of Chief Executive Officer  (Chapter 4, Section 29, Sub-section 5)

• Having gained at least a Master's Degree in Management, Banking, Finance, Monetary, Commerce, Statistics, Accountancy, Mathematics, Administration or Law.
• Or having gained Bachelor's Degree anyone from the above course or Chartered Accountant and 10 years of experience.

8. Tenure Of BOD and CEO In Case of BOD (Chapter 4, Section 15, Sub-section 1)

• Independent Directors: - For Only One Tenure.
• In Case of CEO (Chapter 4, Section 29, sub-section 2): the First appointment is maximum for 4 years. Can reappoint for the next one tenure. BOD has the authority to fire the CEO if performance is not satisfactory.

9. Classification of Banks

• Commercial Banks ‘A’ Class
• Development Bank ‘B’ Class
• Finance Companies ‘C’ Class
• Laghubitta Bittiya Sanstha (Micro Finance Institutions)  ‘D’ Class
• Infrastructure Banks (Chapter 7, Section 49, Sub-Section 5)

10. Other Notable Changes

• Remove the provision regarding Conversion of a licensed institution of higher class into the licensed institution of a lower class (BAFIA 2063, Chapter 5, Section 37)
• ‘D’ Class Microfinance banks are not allowed to write them as Bank. As per Chapter 7 section, 49 sub-section 4 ‘D,’ BFI’s will term as Laghubitta Bittiya Sanstha.
• Voluntary Cancellation of BFI’s

Reference Material

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