House panel dissatisfied with NRB directive

Kathmandu, August 22

The sub-committee under the Parliamentary Legislation Committee has shown dissatisfaction over a directive that was issued by Nepal Rastra Bank (NRB) on July 24, which has barred elected representatives at the local, provincial and central levels from becoming a board director of banks and financial institutions (BFIs).

In a meeting of the sub-committee organised today at Singhadurbar, lawmakers have raised questions to the governor of the central bank about the provision mentioned in the directive.

“The directive that was issued on July 24 does not have any legal base and NRB cannot take any action beyond the established rules and norms,” said sub-committee Coordinator Rewati Raman Bhandari.

He also said the Banks and Financial Institutions Act (BAFIA) has already barred lawmakers from sitting in the  board of BFIs, however, there is no legal provision that has barred representatives elected to local bodies and provinces to be a board member in any BFI.

“NRB can issue directives to BFIs as per its regulatory role, but the regulator also should follow the law,” he said.

Meanwhile, central bank Governor Chiranjibi Nepal has defended the directive issued by the monetary authority citing that NRB made those provisions to maintain corporate governance in the BFIs. “The House panel must also understand the role of the central bank regarding regulation of BFIs. We have issued directives to maintain good corporate governance,” he stated.

Governor Nepal also said that representatives sitting on the board of BFIs might create a situation of conflict of interest in the future. “We have seen many cases related to conflict of interest in the past and NRB is aware of those incidents,” he clarified.

According to Bhandari, the sub-committee has planned to submit its report to the full committee with two options on the issue. “Either the committee should direct NRB to withdraw the directive or the central bank should begin the process to amend BAFIA to include the clause that representatives of local units or provinces would not be allowed to sit on the board of directors of BFIs,” he informed.