Banks and Financial Institution Act, 2073 (Part-5)
Chapter-6: Provision relating to Capital, Capital Fund & Liquid Assets
41. Capital to be Maintained
1. The minimum paid-up capital of BFI shall be as prescribed by NRB from time to time.
2. BFIshall within prescribed time fulfill the condition of minimum paid-up capital as per Sub-section (1).
3. NRB can restrict the shareholding of a particular person, firm, company, or institution in a BFI up to the maximum of 15% of paid-up capital only.
4. Person, firm, company, or institution investing as per Sub-section (3) in a BFI shall invest in any other BFI in such a way that the total investment would amount to less than 1% of paid-up capital of such other BFI.
5. Limit on investment by any person, firm, company, or institution in BFI established in joint investment with foreign BFI, ‘D’ class financial institution, and IDB shall be as prescribed by NRB.
6. Provision related to the establishment of BFI or limit of investment in the share capital of a BFI by any person or institution shall be as prescribed by NRB from time to time.
42. Capital Fund
1. BFI shall maintain capital fund in the ratio prescribed by NRB based on total assets or total risk-weighted assets.
2. BOD shall notify NRB within 1 month in case any BFI could not maintain the capital fund as prescribed in Sub-section (1).
3. Information as per Sub-section (2) shall contain, in addition to other matters, the reason for non maintenance of the capital fund and the plan or program prepared by BFI to increase the capital fund up to the limit prescribed by the direction of NRB.
4. NRB can direct BFI to implement the program or plan as it is if information submitted by BOD as per Sub-section (2) & (3) is found the reasonable and revised program or plan if it needs revision also specifying the reason thereof.
43. Provision related to Probable Loss
BFI shall, as specified by NRB, maintain a Provision of Loss based on the probability of risk of assets including the loans and liability of off-balance sheet items.
44. General Reserve Fund
1. BFIshall maintains a General Reserve Fund. An amount equal to at least 20% of the net profit shall be transferred to general reserve until such reserve becomes double of the issued paid-up capital and an amount equal to at least 10% of net profit shall be transferred afterward.
2. No amount of general reserve fund shall be transferred to any other head or expended without obtaining prior approval of NRB.
45. Exchange Equalization Fund
1. A licensed institution authorized to carry on foreign exchange shall, at the end of each fiscal year adjust the revaluation gain/loss in the Statement of Profit & Loss of the same year on all currencies except INR. While adjusting the gain/loss, if in any year there is revaluation gain, at least 25% of such gain shall be transferred to Exchange Equalization Fund. However, revaluation gain/loss on INR shall be as prescribed by NRB.
2. Except to set off the exchange loss on foreign currency transactions the amount of Exchange Equalization Fund shall not be transferred to any other head or expended without obtaining prior approval of NRB.
46. Liquid Asset to be Maintained
1. BFI shall maintain liquid assets as prescribed by NRB from time to time.
47. Dividend Declaration & Distribution
1. BFI shall obtain prior approval from NRB before declaring or distributing dividends.
2. BFI shall not declare or distribute dividend until it has written off entire preliminary expense, losses incurred up to previous FY, set aside amount for capital/capital fund specified by NRB, provision for probable loss and general reserve fund u/s 44, and shares allocated for the general public has been fully subscribed.
48. Order to Reduce Capital
Notwithstanding anything contained in prevailing law, NRB can issue an order to reduce the issued and paid-up capital of BFI.
Chapter-7: Provision relating to Carrying Banking & Financial Transaction
49. BFI can Carry on Banking or Financial Transaction
1. “A” class bank can carry on following banking & financial transactions subject to this Act, MOA, AOA, limit, conditions, or direction specified by NRB:-
a. Accepting deposit with or without interest or mobilization of deposit utilizing various financial instruments and refunding the same;
b. Accepting deposit, making payment, transfer of fund & intermediary by electronic means;
c. Extending credit facilities like Overdraft, Hire-Purchase, Leasing, Housing;
d. Extending credit against hypothecation and project, Consortium loan based on pari passu collateral as per the agreement;
e. Extending credit against the guarantee of foreign BFI;
f. Extending credit up to the value of movable/immovable property already mortgaged with the bank or extending a credit against the movable/immovable property already mortgaged with any other bank up to the value of such collateral;
g. Issuing guarantee on behalf of a customer of the bank and executing a necessary bond, mortgaging movable/immovable property of the customer or accepting the third party guarantee and collateral, acquiring mortgaged property against such guarantee, holding and conducting any other transaction-related to it;
h. Taking refinance from NRB or finance from other BFI as per the necessity;
i. Extending credit or managing credit out of the amount received from GON or other national and international bodies for the promotion of project;
j. Writing off credit subject to the prevailing rules for writing off;
k. Issuing shares, debentures, bonds, etc. to maintain the capital fund;
l. Issuing, accepting, paying, discounting, or purchasing and selling letters of credit, bills of exchange, promissory notes, cheques, traveler's cheques, drafts, or other financial instruments;
m. Issuing, accepting, managing of cards and other financial instruments and appointing an agent to discharge the function thereto for electronic transaction;
n. Dealing in foreign exchange transactions subject to the prevailing law;
o. Dealing in government transaction subject to the limit, terms, or direction specified by NRB;
p. Purchasing/selling or accepting the bonds issued by GON or NRB;
q. Sending payments inside Nepal or Outside Nepal using a letter of credit, cheque, or other financial instruments, accepting remittance from foreign and making payments of the same;
r. Taking into custody, selling and purchasing, the shares, debentures, or securities on behalf of customers while acting as a commission agent, collecting a dividend on shares and interest on debentures or securities, and remitting such dividend or interest within Nepal or outside Nepal, arranging of safe deposit vaults for the customers;
s. Dealing in off-balance sheet transactions;
t. Extending credit based on personal or collective guarantee up to the limit specified by NRB to the deprived sector, the family having low income, victims of natural disaster/calamities and for the economic development of inhabitants in any area of the country;
u. Sharing of information of borrowers/customers availing credits or any other facility from the bank or any other BFI, between NRB, concerned department, or any other banks or FIs;
v. Selling and purchasing of Gold and Silver;
w. Conducting or causing to be conducted the study, research, survey and providing training, counseling, and any other information to establish, operate and evaluate the project;
x. Properly managing and selling all kinds of assets falling under its ownership as per this Act and prevailing law;
y. Providing guarantee as per the agreement between two parties, in respect of any payment to be made or to be received between such parties after the completion of activity;
z. Any other activity as prescribed by NRB.
2. “B” class FI can carry on following banking & financial transactions subject to this Act, MOA, AOA, limit, conditions, or direction specified by NRB in addition to the banking and financial transactions as prescribed in Clause (a), (b), (c), (f), (h), (i), (j) (n), (p), (r), (s), (t), (u) & (x) of Subsection (1):-
a. Extending credit against the project, providing or causing to be provided consortium loan against the collateral based on pari passu as per mutual agreement;
b. Issuing guarantee on behalf of a customer of the bank and executing a necessary bond, mortgaging movable/immovable property of the customer, or accepting the third party guarantee and collateral;
c. Issuing, accepting, making payment against, discounting or selling, or purchasing the Bills of exchange, Promissory Note, Cheque, Traveler’s Cheque, Draft;
d. Borrowing amount against the movable and immovable property of itself;
e. Operating the transactions of remittance and letter of credit subject to the prior approval of NRB;
f. Taking into custody, selling and purchasing, the shares, debentures, or securities on behalf of customers while acting as a commission agent, collecting a dividend on shares and interest on debentures or securities, arranging of safe deposit vaults for the customers;
g. Transferring of money within Nepal;
h. Conducting or causing to be conducted the study, research, survey and providing training, counseling and any other service and information for the establishment, operation, and banking, credit, assets, account, credit evaluation of the project;
i. Any other activity as prescribed by NRB.
3. “C” class FI can carry on following banking & financial transactions subject to this Act, MOA, AOA, limit, conditions, or direction specified by NRB in addition to the banking and financial transactions as prescribed in Clause (a), (b), (f), (h), (i), (k) (r), (u) & (x) of Sub-section (1):-
a. Extending credit facilities like Hire Purchase, Leasing, Housing;
b. Providing consortium loan against the collateral based on pari passu as per the mutual agreement;
c. Borrowing amount against the movable and immovable assets of itself;
d. Proper management, selling and renting the properties of itself;
e. Issuing, accepting, making payment against, discounting, or selling/purchasing the bills of exchange, promissory note, cheque, traveler’s cheque, draft, or another financial instrument;
f. Dealing in foreign exchange after obtaining prior approval of NRB;
g. Providing Hire Purchase credit or credit based on installments for vehicles, machinery, tool, equipment, durable household item, or similar movable assets to any person, firm, company, or institution;
h. Providing Lease Finance to rent the vehicles, machinery, tool, equipment, durable household item, or similar movable assets to any person, firm, company, or institution or leasing the same;
i. Issuing guarantee on behalf of its customers and executing necessary bonds, obtaining security, mortgaging movable or immovable assets of the concerned person, or accepting the collateral or guarantee of the third person for the same;
j. Selling or leasing the whole or part of its assets;
k. Fixing the price based on the agreement between seller and FI, of any items which were purchased and are going to be sold to another buyer at the current or deferred value;
l. Any other activity as specified by NRB.
4. “D” class FI can carry on following banking & financial transactions subject to this Act, MOA, AOA, limit, conditions, or direction specified by NRB:-
a. Extending credit, to the projects as specified by NRB, with or without any collateral and guarantee to group maintaining saving or group of members to start a micro-enterprise project;
b. Obtaining credit or subsidy from BFI, national or international organizations, etc., and supplying such credit/subsidy to distribute micro-credit or to make efficient such distribution; Provided that, before receiving such credit or subsidy, prior approval of NRB shall be obtained.
c. Evaluating the project for which micro-credit has been requested and studying its probability before proving microcredit;
d. Providing necessary service and counseling to the groups in respect of mobilization of microcredit;
e. Taking necessary steps towards the timely recovery of microcredits;
f. Acceptance of deposit and making payment of such deposit, subject to the terms and conditions prescribed by NRB, after obtaining the prior approval from NRB;
g. Issuing shares, debentures, bonds, etc. to maintain the capital fund as prescribed by NRB;
h. Sharing of information of borrowers/customers availing credits or any other facility from it or any other BFI, between NRB, concerned department, or any other banks or FIs;
i. Any other activity as prescribed by NRB.
5. “IDB” can carry on the following financial transactions subject to this Act, MOA, AOA, limit, conditions, or direction specified by NRB:-
a. Extending credits to and investing in shares of, infrastructure development projects;
b. Investing in securities of a company engaged in infrastructure development projects;
c. Opening letter of credit or issuing a guarantee for the transaction of purchase, sale, supply, or installations of machinery, tools,,,,, and types of equipment necessary for the construction and operation of projects related to infrastructure development;
d. Issuing financial instruments in local or foreign currency and borrowing amounts, necessary to invest in infrastructure projects after obtaining the prior approval or NRB;
e. Mobilization of the resource by accepting long term deposits or issuing debentures;
f. Dealing in leasing transactions after obtaining approval from NRB;
g. Extending credit or facility to the projects against the guarantee of foreign BFI;
h. Any other activity prescribed by NRB.
50. Activities Prohibited to be Carried on by BFI
1. BFI shall not do or cause to be done the following activities:-
a. Purchase and sell of material to do business or construct buildings or purchase of immovable property for a purpose other than the use of BFI itself;
b. Extending credit against the security of its own shares;
c. Providing credits or any other facility to, director, the person holding 1% or more shares, CEO or family members or managing agent of such persons or any person, firm, company, or institution having substantial interest infirm, company, or institution holding the right to nominate the director;
d. Extending credits more exceeding the limit of the capital fund as prescribed by NRB to single customer, company, companies of a single group or partnership firm, related person;
e. Extending any types of credit to any person, firm, company, or institution against the guarantee of the promoter, director, or CEO;
f. Investing in securities of “A”, “B” and “C” class BFIs as classified by NRB;
g. Investing in the share capital of any other institution above the limit specified by NRB;
h. Creating monopoly or any other controlled practice in financial transactions by banks or FIs mutually;
i. Any acts creating an obstruction in the competitive environment of the financial sector to gain unlawful benefit;
j. Any other acts prohibited to be carried on by banks or FIs as prescribe by NRB from time to time.
2. Notwithstanding anything contained in this Act, it shall not be deemed to be restricted, to conduct banking or financial transaction or to provide residential and other benefits to its employees subject to its Employee Byelaw, providing credits against bonds issued by GON or NRB, against the amount in saving deposit or fixed deposit receipt and to extend credit against own FDR, bonds issued by GON or NRB, issue credit card facility to the promoter, director, CEO, or person holding shares more than 1%.
51. Provision related to Subsidiary Company
1. BFI can incorporate subsidiary company after obtaining prior approval of NRB.
2. NRB while providing approval may issue necessary terms and conditions.
52. Prohibition on Transaction with Related Person
No BFI shall extend credit or facility to any related person.
53. Notification of Suspicious Transaction
BFI shall, know their customers and notify suspicious transactions as per the prevailing law of Anti Money Laundering/Combating the Finance of Terrorism (AML/CFT).
54. NRB to Issue Direction
NRB can issue necessary direction in respect of procedures and any other matter as per this Chapter.