Parliamentary panel endorses Bank and Financial Institutions Bill

Kathmandu, May 25

The parliamentary panel has endorsed Bank and Financial Institutions Bill removing provision of draft Bill to bar a person to be a chairman of banks and financial institutions for more than two terms and has also increased the term of board of directors and managing director to five years from existing provision of four years. However, it has barred directors from taking top position in management except for Class ‘D’ financial institutions.

Based on the report prepared by the seven-member subcommittee led by parliamentarian Deepak Prasad Kuikel, the Finance Committee meeting today endorsed the Bill and is preparing to forward it to Parliament tomorrow with some amendments in the draft Bill. The Bill needs to be endorsed by a full-house before it can be made into law.

The new Bill that was endorsed by the House panel has allowed only one term for independent board of director and has barred people, who have assumed positions in specified constitutional bodies.

The Bill proposed by the Finance Committee has also reduced the lock-in period to convert promoter shares into ordinary shares. Banks and financial institutions (BFIs) that have completed seven years of operation will soon be able to convert all promoter shares into ordinary shares as per the Bill. Earlier, the draft Bill had proposed a timeline of 10 years to convert promoter shares into ordinary shares.

As per the Bill, all the promoter shares can be offloaded and converted into ordinary shares only if the move does not affect the capital market, the banking sector and the entire financial sector. But Nepal Rastra Bank (NRB)’s prior approval is required to convert promoter shares into ordinary shares.

Currently, NRB has made it mandatory for promoters of BFIs to hold at least 51 per cent of the shares. Another 30 per cent of the equities must be converted into ordinary shares, and there is an option to convert additional 19 per cent of promoter shares into ordinary shares.

The new provision means BFIs that have completed seven years of operation may conduct business without roping in promoters. Similarly, the House panel has also proposed to raise tenure of CEO of BFIs to five years and let the chief executive serve the same institution for at least two terms. Earlier, the Bill had limited CEO’s tenure to four years.

But the subcommittee has proposed to bar officials of the banking sector regulatory body, who have not completed two years of retirement, from assuming the post of CEO at BFIs.

Also, the subcommittee has recommended that the Bill include a provision to enable BFIs to sell shares that have remained undersubscribed during initial public offerings to any firm or organisation.