Kathmandu, September 13

Banks and financial institutions will now have to take permission from Nepal Rastra Bank to hire as well as fire their chief executive officers.

The bill to amend the Banks and Financial Institutions Act, 2017, registered at the Parliament by Finance Minister Yubaraj Khatiwada yesterday has proposed compulsory consent of the NRB for BFIs to recruit or dismiss their CEOs.

Prior to this, the board of directors at BFIs could appoint or sack CEOs.

The government is introducing such a provision to address the trend of BFIs’ board pressuring the CEOs to issue loans to people based on their recommendations and at low interest rates. In such a context, CEOs had no option but to accept recommendation of board members or quit.

NRB officials, seeking anonymity, said this provision had been proposed to make CEOs of BFIs more professional.

The provision of taking consent before hiring or firing CEOs is certain to dishearten the boards of BFIs. However, even bankers do not seem to be happy with such a provision proposed in the amendment bill of BAFIA. “Allowing the board at BFIs to appoint its CEOs makes the board responsible towards activities and decisions of the bank,” opined a commercial bank CEO, seeking anonymity.

Meanwhile, Bhuwan Dahal, CEO of Sanima Bank, said NRB’s focus should have been on ensuring the appointment of more professional directors in the board of BFIs. “NRB’s interference in appointment and dismissal of CEOs seems to be driven by the fact that 90 per cent of investment in banks is from public and thus the CEOs should be made more responsible. However, it would have been best if the number of independent directors, who are trained and experienced, were raised in the board of banks,” he said.

On the other hand, experts say that the proposed provision seemed restrictive in nature. “NRB has already set the criteria for qualification and experience that a bank’s CEOs should have. The central bank should have focused on whether the boards in BFIs are making appointments of CEOs accordingly,” said Dipendra Bahadur Chhetri, former governor of NRB.

Though NRB seems to have tried to control the rise of non-professional activities of banks, especially from CEOs appointed by the board, NRB should have adopted some other measures to control such activities, he added. “What if other regulatory bodies such as Office of Company Registrar and Securities Board of Nepal came up with the same provision in the future?” wondered Chhetri.

The bill to amend BAFIA has also fixed maximum of two tenures (altogether four years) for board members at BFIs.