Bank and Financial Institution Act 2073 Highlights & Major Provisions

Banks and Financial Institutions Act (BAFIA) 2073 is an umbrella law of Banks and  Financial Institutions (BFIs) in Nepal.

• Chapter 1 – Preliminary
• Chapter 2 – Provision on Incorporation of Bank and Financial Institutions
• Chapter 3 – Provisions Concerning Transactions of Securities
• Chapter 4 –  Provisions on Board of Directors and Chief Executive
• Chapter 5 – Provisions on License
• Chapter 6 – Provisions on Capital, Capital Fund, and Liquid Assets
• Chapter 7 – Provisions on Operation of Banking and Financial Transactions
• Chapter 8 – Provisions on Disbursement and Recovery of Credits
• Chapter 9 – Provisions on Accounts, Records, Details, and Reporting
• Chapter 10 – Provisions on Merger and Acquisition of Bank or Financial Institutions
• Chapter 11 – Voluntary Liquidation of Banks and Financial Institutions
• Chapter 12 – Provisions on Mandatory Liquidation of Banks or Financial Institutions
• Chapter 13 – Provisions on Actions, Offences and Punishment
• Chapter 14 –  Miscellaneous

Objective of the Bank and Financial Institution Act

• To promote public trust in banks and financial institutions
• To provide quality and reliable banking services
• To promote the rights and interests of depositors and investors
• To protect from banking hazards and banking risks
• To promote the national economy by using or adopting economic liberalization (निजि क्षेत्रलाई कर्जा दिएर व्यवसायमा संलग्न गराउने)
• To make legal provision relating to the incorporation, management, operation, and winding up of banks and financial institutions.

Features of BAFIA 2073

• BAFIA aims to enhance public trust in the banking system and protect and promote the rights of the customers.
• Promote quality and reliable banking and financial services through healthy competition.
• Strengthen the financial stability.
• Clear provision for incorporation, operation, and management, regulation, inspection, and supervision of BFIs.
• Provision has been made to obtain approval of Nepal Rastra Bank for the establishment and licensing of BFIs, branch opening, and other financial transactions.
• The provision has been made for BFIs to issue at least 30 % of shares to the general public.
• There is a provision prohibiting the director, CEO, auditor, company secretary, and person directly involved in the accounting work of BFIs from trading in the BFIs’ securities while holding office and within 1 year after retirement.
• No BFIs are allowed to incest in “A”, “B”, and “C” class securities.
• BFIs are classified on the basis of paid-up capital and work and are licensed by the NRB.
• Provision can be made by completing and procedure prescribed by NRB if classes “B” and “C” want to upgrade to “A” except “D” class.
• Provision for credit disbursement and recovery through auction.
• Provision for the merger and acquisition of BFIs.
• Voluntary and compulsory conditions for liquidation of BFIs.

What are the provisions for incorporating the BFIs as per BAFIA 2073?

The incorporation of BFIs in Nepal has been provided in Chapter 2, sections 3 & 4 of BAFIA 2073. 

Banks and Financial institutions can be incorporated as a public limited company. Prior approval from NRB is required. A person of the institution must submit the following documents, fees with the application in the NRB format to get prior approval.

Documents Needed:

1. Memorandum of Association (MoA)
2. Articles of Association (AoA)
3. Feasibility study report
4. If there is any agreement between the petitioner to establish it, then a certified copy of such agreement.

Other documents as prescribed by NRB

1. Personal details of the applicant.
2. Details of the source of investment and proof of tax clearance up to the previous financial year.
3. CIC clearance and proof that promoters are not bankrupt, blacklisted, and not restricted from transactions with BFIs, a period of three years must have elapsed after removal from the blacklist.
4. Self-declaration that no action has been taken in Nepal or abroad for cheating, fraud, or criminal offence under the prevailing law, and no punishment has been imposed for such offense.
5. Details of the family members.
6. Written authority to NRB to inquire into the financial and business background.
7. Other details and documents are prescribed by NRB from time to time.

After thoroughly examining the above documents, NRB may give prior approval within 120 days.

What are the Conditions for refusing prior approval by NRB?

Nepal Rastra Bank holds the right to refuse the prior approval of BFIs’ incorporation if:

• Subjected to regular actions of the NRB
• Punished for the banking offense
• Punished for cheating, fraud, and  forgery
• Punished for the offense of AML CFT.
• Punished for the offense of corruption
• Punished for serious crimes such as human trafficking, kidnapping, hostages, and rape cases.