Nepal Rastra Bank Act, 2058, clarifies the objective, function, responsibility, authority, and preference of the bank. It also clarifies the function that that is prohibited to this bank, facility, and relationship with the Government of Nepal. In addition, the coordination and relationship with public and international organizations and communication and operation of accounts are also determined. This act has elucidated the monetary function and the statutory ratio to be maintained by all banks and financial institutions. In addition, penalty, open market operation, loan, re-loan, discount, and interest to banks are also explained.
Adequate provisions are made in this act of proper management of foreign currencies. The chapter describes various policies and regulations regarding foreign exchange, for reserves, gold and debentures, international clearing, and payment contract.
Regarding the regulation, supervision, and monitoring of banks, this act has made different provisions. As the central bank of Nepal, Nepal Rastra Bank has to regulate all commercial banks and institutions affiliated to it. They are essential for the implementation of monetary policy and credit control. For the faceguard of public wealth deposited into the bank, the bank regularly supervises and monitors banks.
For the expansion and development of banking within the country, the bank grants authority for the establishment of a bank, deposit collection, advance loan, etc. Any action opposing this law is unforgivable. So if any authority breaks the law and regulation, the defaulter is charged, and immediate action is taken. If necessary, a penalty is given to the party; the defaulter can re-apply for justice to the high court if it feels to be suffered from business and injustice. NRB act 2058 has made legal provisions about these issues.
1. There shall be a central bank established in the name as Nepal Rastra Bank in order to carry out the functions of the central bank.
2. The bank shall be an autonomous and corporate body with perpetual succession.
3. There shall be a separate seal for the transaction of business of the bank
4. The bank may acquire, utilize, retain, sell, and otherwise dispose of or manage the movable and immovable property.
5. The central office of the Bank shall be located at Kathmandu and the bank may open branch, sub-branch, and other offices at any place within and outside Nepal.
6. Objectives of the Bank:
a. To formulate necessary monetary and foreign exchange policies
b. To promote stability and liquidity required in the banking and financial sector
c. To develop a secure, healthy, and efficient system of payment
d. To regulate, monitor and inspect banking and financial system
e. To enhance the accessibility of banking and financial services to every denizen of
Nepal
f. To enhance public credibility
7. Functions, Duties and Powers of the Bank
a. To issue banknotes and coins
b. To formulate necessary monetary and foreign exchange policies
c. To determine the system of the foreign exchange rate.
d. To manage foreign exchange reserve.
e. To issue license to the bank and financial institutions to carry out banking and financial business
f. To act as the banker, advisor, and financial agent of the Government of Nepal
g. To act as the banker of the banks
h. To manage credit creation, interest rates, and inflation
8. The bank has the prior right of security over cash deposited in the bank or in any commercial bank or financial institution or any other movable or immovable property owned by the borrower for the purpose of recovering the loan.
9. Functions not to be carried out by the Bank
a. Providing any loan, accepting any type of deposit, or making any type of financial gift
b. Purchasing shares of any commercial bank, financial institution, public corporation, or a company
c. Carrying out any type of business
d. Acquiring movable or immovable property by the way of purchase, lease or in any manner
10. The bank can provide a loan to its own employees
11. The bank can invest in the shares of the institutions which carry out the functions helpful in carrying out the function of the Bank, not exceeding ten percent of the total capital of such an institution.
12. Special Facilities to the Bank
a. Exemption from all types of taxes, fees, and charges on income, capital transactions, land, assets, etc.
b. No requirement for the payment of registration fee for the registration of the deeds of loan
c. No requirement of revenue stamps on any of the documents relating to the Bank
d. There would be no tax, fee, charge, duty on the export and import of banknotes, coins, gold, silver, and any other material required for printing banknotes and minting coins.
13. The Governor, Deputy Governor and Director shall be removed from the office on any following circumstances:
a. If one is disqualified to be a director pursuant to section 21
b. Lack of the capability to implement or cause to implement the functions which the
Bank has to carry out in order to achieve its objectives
c. If one has committed any act causing loss and damage to banking and financial system of nation
d. If one is found to have acted dishonestly or with mala-fide intention in any transaction-related to the business of the Bank
e. If one is absent for more than three consecutive meetings of Board without a genuine reason
14. The meeting of the Board shall be held as per the requirement of the Bank, provided that the Board meets at least once in a month.
15. The governor shall call the meeting of the Board, provided that in case a written request from three Directors of the Board to call the meeting of the Board, the Governor shall call the meeting of the Board.
16. Functions, Duties and Powers of the Board
a. To frame monetary and foreign exchange policy
b. To take necessary decisions regarding the denomination of banknotes and coins
c. To approve the annual programs and budget of the Bank
d. To approve the annual report on the activities of the Bank
e. To approve the limit of loan to be provided to the Government of Nepal by the Bank
f. To frame necessary policies for supervision and inspection of Banks and Financial
Institutions
g. To frame a necessary policy for the issue of license to Banks and Financial Institutions and for revoking such license
h. To frame policy for the mobilization and investment of Bank’s financial resource
17. Functions, Duties, and Powers of the Governor
a. To implement the decision made by the Board
b. To operate and manage the bank
c. To systematize the functions to be carried out by the Bank
d. To represent the Bank in international organizations and associations
e. To implement the policies relating to monetary and foreign exchange matters
f. To formulate necessary policy on the rate of interest for depositors and loans with commercial banks and financial institutions
g. To formulate necessary policies relating to liquidity to be maintained by commercial banks and financial institutions
h. To fix the charge on the services to be provided by the Bank
i. To establish and close the agency of the Bank
j. To take decision with regard to revocation of the license provided to commercial banks and financial institutions
k. To make necessary arrangements for the supervision of commercial banks and financial institutions
l. To make the necessary arrangement for the development and operation of the information system of the Bank
18. The capital of the Bank shall be one billion rupees.
19. The capital of the Bank shall be received from the Government of Nepal.
20. The Bank shall prepare the account of Profit and Loss in each fiscal year in accordance with international accounting standards.
21. The profit of the Bank shall be allocated in the following headings:
a. Five percent of Net Profit shall be allocated to Monetary Liability Fund.
b. Not less than 10 percent of Nepal Profit shall be allocated to the General Reserve Fund of the Bank
c. The revaluation profit shall be deposited in the revaluation fund.
d. The remaining profit after allocating to other funds shall be paid to the Government of Nepal.
22. The operation loss of the bank shall be charged to the general reserve fund, while revaluation loss shall be deducted from the revaluation fund.
23. The bank shall issue directives to the commercial banks and other licensed financial institution to maintain compulsory reserve with the Bank in proportion to the deposit accumulated with them.
24. In case of failure in maintaining the compulsory reserve, the bank shall impose fine to those banks and financial institutions for the period of such failure. The amount of fine shall not be more than three times the bank rate prescribed by the bank.
25. The bank shall provide a loan facility to a commercial bank for a period of six months against the security of the following assets: a. International negotiable instrument
b. The bond issued by the Government of Nepal payable within Nepal
c. The deposited accumulated in the Bank or the gold and precious metals, which bank may transact
d. Bill of exchange or promissory notes
26. The bank shall have a monopoly over the issue of banknote and coins in Nepal.
27. The bank shall issue notes only against the security, and the liability of such issued notes shall be equal to the value of property kept as security.
28. The bank shall issue the banknotes of various denominations as may be necessary. While issuing the banknotes in this way, the figures appearing in the notes, size and denomination shall be as approved by the Government of Nepal.
29. The bank shall not reissue the notes which are torn, defaced, or excessively soiled.
30. The bank shall mobilize the foreign exchange reserve. Such reserve shall be denominated in the respective foreign exchange and such reserve shall consist of the following assets:
a. Gold and other precious metals held by the bank
b. Foreign currencies held by the bank
c. Special Drawing Rights held by Bank at IMF
d. Bills of Exchange and other negotiable instruments payable in convertible foreign currency
e. Any forward purchase or repurchase agreements of the Bank concluded with or guaranteed by foreign central banks or public international financial institutions, and any futures and options contracts of the Bank providing for payment in freely convertible foreign currency
31. Relation with Government of Nepal
a. Banker, advisor, and Financial Agent
b. Opinion and Information relating to External Debt: Government of Nepal may consult the Bank while taking a loan from the external sector. The government of Nepal may consult regarding the amount of loan, the terms, and conditions of the loan, and the repayment of the loan. The government of Nepal shall inform the Bank when external loans have been received.
c. Deposit Collection: The bank shall accept the deposit of the Government of Nepal.
d. Functions of Fiscal Agent: the bank shall act as fiscal agent of the government of Nepal on the following matters:
i. Marketing, purchase, and sale of debt bonds issued by the Government of Nepal
ii. Payment of principal, interest, and other fees of the debt bonds e. Bank may ask for particulars, statistics, and documents
f. Credit to Government of Nepal and Purchase of Government Debt Bonds
32. Bank can take action against Problematic Commercial Bank or Financial Institutions
a. To increase the paid capital by issuing new shares or by receiving a due amount of issued capital.
b. To suspend the right to vote or other rights of shareholders.
c. To stop payment of a dividend or any other amount to the shareholders to increase the capital.
d. To determine limitation to the amount of bonus, salary, compensation, and other expenses for the director and other high-level management officials.
e. To make necessary arrangements for corporate governance, internal control, and risk management of commercial banks or financial institutions.
f. To prohibit or make limitations in the collection of the deposit, credit supply, or investment.
g. To maintain sufficient capital and a high proportion of liquidity or prohibit business transaction or determination of other necessary terms.
h. To limit transaction of the commercial bank or financial institution or prohibit the sale of property or expansion of branch office or close any domestic or international branch.
i. To maintain necessary arrangements for reduction of risk of the properties which are materially doubtful or securities without proper evaluation or other properties.
j. To prohibit any action carried out illegally by breaching the prevailing law and regulation of the bank that is against the interest of commercial banks or financial institutions.
k. To prohibit from doing some specific business among the businesses allowed to commercial banks or financial institutions for a specific time.
l. To receive prior approval of the bank for major capital expenditure, substantial commitments having major liabilities, or for the expenditure of contingent liabilities.
m. To issue order to remove from the post to single or more director or manager or employee as per the necessity
33. If the licensed institution violates an order by the Bank, the bank may impose one or more of the following punishment to such licensed institutions:
a. Giving reprimand or written warning;
b. Obtain an undertaking from Board of Directors for adopting reformative measures;
c. Issuing written order to end up frequent violations, to abstain from such violation and to adopt reformative measures;
d. Suspend or terminate the services of the Bank's employee;
e. Prohibit commercial bank or financial institution to distribute a dividend to its shareholders
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