Nepal | February 21, 2020

Nepal Rastra Bank mulls over banning lawmakers from joining BFIs’ board

Rupak D Sharma

Kathmandu, September 11

Nepal Rastra Bank is mulling over banning parliamentarians from joining the board of directors of banks and financial institutions to avoid conflict of interest and minimise interference in regulatory works.

The banking sector regulator is considering to introduce such a provision after board members of some of the banks, who also wear the hat of parliamentarians, strongly opposed NRB’s move to raise paid-up capital of BFIs by up to four fold during hearings of Parliament’s Finance Committee.

NRB is worried these MPs, who are also sitting on the board of commercial banks, will use their influence on the parliamentary committee to issue a verdict to prevent NRB from implementing its recapitalisation plan.

“We never thought a legal provision to bar parliamentarians from joining the board of BFIs was necessary, because we always assumed lawmakers would use their wisdom,” NRB spokesperson Trilochan Pangeni said. “But considering the latest developments, it appears such a provision has to be incorporated in the Banks and Financial Institutions Act.”

Issuing the Monetary Policy on July 23, NRB had instructed commercial banks to raise minimum paid-up capital from the existing Rs 2 billion to Rs 8 billion by mid-July 2017.

Also, national-level development banks were told to raise minimum paid-up capital from Rs 640 million to Rs 2.5 billion before the deadline. Development banks operating in four to 10 districts and in one to three districts, and finance companies were also asked to raise paid-up capital accordingly.
Although NRB has said the new capital structure would enhance shock absorbing capacity of BFIs and help them consolidate their positions in the market, many bankers have been opposing the recapitalisation plan from the day it was introduced.

Recently, the issue was also discussed in the parliamentary committee on finance, where Ichchha Raj Tamang, a parliamentarian representing the CPN-UML and chairman of Civil Bank, called on NRB to revise its decision. His call was supported by Udaya Nepali Shrestha, chairman of Janata Bank, and Duman Thapa, director of Mega Bank, who are also lawmakers of the CPN-UML.

These interventions have raised the eyebrows of NRB and it fears similar conflicts of interest might arise in the future. “As the regulator of the banking sector, we have to regularly conduct on-site and off-site inspections of BFIs. And if the board of a bank or a financial institution, which is being inspected, comprises a parliamentarian, chances of use of influence cannot be ruled out. This will be detrimental for healthy growth of the banking sector,” said Pangeni.

Also, the hierarchical structure in the country — in which parliamentarians are ranked higher than the central bank governors — has made NRB uncomfortable.
“Senior NRB officials at times have to meet board directors or members of BFIs. If those board directors or members also assume the role of parliamentarians, then NRB officials may not be able to talk to them freely,” Pangeni said, justifying the need to introduce a legal provision that bars lawmakers from joining board of BFIs.

A version of this article appears in print on September 12, 2015 of The Himalayan Times.

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