BAFIA: What and Why?
The 25 major highlights of BAFIA 2073 illustrate the major characteristics of BAFIA 2073. Banks and Financial Institutions Act aims to improve and consolidate the prevailing legislation relating to banks and financial institutions and to promote the trust of the general public in the overall banking and financial system of the country.
Moreover, it strives 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, boost and consolidate the economy of the State of Nepal by liberalizing the banking and financial sectors and make necessary legal provisions relating to the establishment, operation, management and regulation of banks and financial institutions.
The major highlights of BAFIA 2073 have been discussed below.
25 Major Highlights of BAFIA 2073
- Banks and Financial Institutions (BFIs) can be registered only as a Public Limited Company.
- A person desirous to establish BFIs must submit the application in NRB along with MOA, AOA, Feasibility analysis report, Personal details of the applicant, Personal details of members of management committee, promoter’s income sources for investment, and provide clear information on whether or not involved in insolvency, declared convict by law, and blacklisted by BFIs.
- BFIs should take approval from Securities Board of Nepal and must register its prospectus in NRB before publishing and distributing it to the general public.
- BFIs should aside at least 30% of its total issued capital for subscription by the general public.
- BFIs must take approval from NRB before issuing debentures or any other financial instruments.
- Maximum 0.5% of total share can be allotted to employees of that BFIs. (Amended in BAFIA 2073)
- Promoters can’t sell their shares at least for 10 years from the date of commencement of the bank. (Amended in BAFIA 2073) (See: 10 Major Amendments in BAFIA 2073)
- Promoters share can be converted into common equity shares after 10 years of establishment of BFIs.
- Prohibition to engage in share trading of the company by a person (along with his undivided family members) who is appointed as CEO, Accountant, and member of the Board of directors of that company. They are not allowed to engage in share trading for one year from the date of resignation from the post of that BFI.
- BFIs must have a board of director with at least five and at most seven members. (Amended in BAFIA 2073)
- The tenure of the director shall not exceed four years. The directors except for independent director can be reappointed or renominated for next tenure. (Amended in BAFIA 2073)
- Board Meeting: at least 12 times a year (gap maximum of 2 months between meetings.)
- The promoter, director or shareholder possessing more than 0.1 percent share of that bank and the financial institution or his/her members of the undivided family shall not be allowed to become a Professional Director. (Amended in BAFIA 2073)
- No person or entity other than those licensed banks and financial institutions shall carry on financial transactions.
- No person shall use the name of a bank or financial institution for the purpose of carrying on the financial transactions, without obtaining the approval of the Nepal Rastra Bank.
- No person or entity shall use terms such as a bank, finance company, banking or any other term that reflects the meaning of the same kind with their name.
- Banks and Financial Institutions are classified as Class A, Class B, Class C, Class D, and Infrastructure Development Bank (added in BAFIA 2073). (See: 10 Major Amendments in BAFIA 2073)
- Class B, Class C, and Class D licensed institutions are not allowed to use other than Development Bank, Finance Company, and Micro Finance Institutions (Amended in BAFIA 2073).
- Banks and financial institutions must maintain paid-up capital as per the directive of NRB.
- BFIs must maintain the general reserve and must contribute 20 percent of net profit each year until the reserve is equivalent to double of capital, and must contribute 10 percent of net profit each year thereafter.
- BFIs must grant a loan to an individual or entity only after acknowledging the purpose of the loan.
- The appointment of board members is made by founders until the first annual general meeting is held.
- Dividends can only be distributed after: (i) recovering all preliminary expenses and previous losses, (ii) maintaining minimum paid-up capital and capital reserves, (iii) allocating a pre-specified percent of net profit to General Reserve, and (iv) distribution of shares that have been allocated to public.
- Merger and acquisition: NRB can direct banks to merge in the following circumstances:
- If the paid-up capital is not sufficient or worsening of financial condition since last three years.
- If BFIs conducted any activities that have an adverse impact on depositors.
- If NRB thinks that merger and acquisition of a BFI would contribute to the competitiveness of bank and financial institution as a whole
- Any bank or financial institutions declared as problem banks or financial institutions are not eligible for the merger.
- Prohibition to conduct activities by licensed BFIs:
- Prohibition to build the building or purchase an immovable property which is not necessary for conducting banking and financial activities.
- Prohibition to purchase goods with an intention to conduct business.
- Prohibition to grant loan against its own shares as collateral
- Prohibition to act as a guarantor by founder, member of BOD, or any employee of the concerned BFI while granting a loan
- Prohibition to purchase shares of its own
- Prohibition to invest in shares of class ‘A’, class ‘B’, and class ‘C’ category of BFIs
- Prohibition to form a joint collaboration among BFIs with an intention to create a monopoly
- Prohibition to engage in creating artificial hindrances in a competitive environment with an intention to take undue advantage.
- Banking Offence and Punishment
| S.N. | Offense | Punishment |
| 1 | To carry on the financial transaction without permission and licensing from NRB | 3 times fine amount plus 5-year imprisonment |
| 2 | To provide the fake description in order to get permission and licensing from NRB | 2 times fine amount plus 2-year imprisonment |
| 3 | To engage in foreign exchange transaction without permission from NRB | The fine amount plus 1-year imprisonment |
| 4 | To grant loan by breaching the terms of the banking law | |
| 5 | To engage in financial transaction violating the terms and condition prescribed by NRB during licensing |
27. Power, functions, and duties of Chief Executive:
- To implement the decision of the board and supervise and control the activates and transaction of the bank or financial institution
- To prepare an annual budget and action plans for the bank or financial institutions and present them before the board for approval
- To manage necessary human resource
- To implement the decision of the board and the general meeting and the directives of Nepal Rastra Bank
- To present all the necessary particulars, documents, decisions and so on as required to be submitted by the bank or financial institution to the Nepal Rastra Bank or any other bodies on time.
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