Kathmandu, January 10

The Legislature-Parliament today endorsed the Banks and Financial Institutions Bill with provisions that strengthen the supervisory and regulatory capacity of the central bank and enhance corporate governance. The bill, which was endorsed from the Parliament today, will be effective after the President provides stamp of approval.

The bill provisions only two terms of four years each for the chairperson and management head of banks and financial institutions to enhance corporate governance of BFIs.

The chief executive officer should be a master’s degree holder in management, banking, finance, economics, commerce, accounts, statistics, mathematics, trade administration or law or a bachelor’s degree holder with at least 10 years of experience.

The new bill also incorporates a provision on consortium financing, which allows BFIs to extend loans by accepting projects or movable assets as collateral. This pact entitles every bank to proportional stake in collateral if borrower defaults on loan payment.

The lock-in period to convert promoter shares to public shares has been fixed at 10 years and BFIs need to take consent from the central bank for the conversion of promoter shares.

More importantly, the bill bars people holding constitutional posts to be associated with BFIs as board of director or hold any other position. The bill has also allowed BFIs to allocate 0.5 per cent of the total shares to their staffers.

The bill had landed in controversy last year for altering some crucial provisions. The bill, which was primarily drafted by Nepal Rastra Bank, had been submitted to the Parliamentary Committee on Finance, which also includes a commercial bank chairperson as member. The committee removed the provision on two-term service tenure for BFI chairpersons, which would have allowed them to serve the institutions throughout their lives. They also prolonged the term of chairpersons and CEOs of BFIs from four years to five years.

Those provisions, according to experts, would have hit governance of BFIs and stifled innovation because of the presence of the same person in the same post for a prolonged period.

After coming under fire for the alterations, the House of Representatives had sent the legal framework back to the Parliamentary Committee on Finance for further review on June 21. The bill was resubmitted by the Finance Committee of the Parliament to the full House for its endorsement in the last week of November.