Banks and Financial Institution Act, 2073 (Part-4)
Chapter-5: Provision relating to License
31. Prohibition on Carrying on Banking and Financial Transactions other than by Banks or FIs
1. Everyone other than banks or FIs licensed u/s 34(1), is prohibited from carrying on banking and financial transactions as per this Act.
2. NRB shall, provide a license to BFI, formulate and implement necessary policy.
32. Use of the Name of BFI
1. No person shall use the name of BFI to carry on banking & financial transaction without obtaining the prior approval of NRB.
2. No individual, company, firm, or organization, except the BFI and branches of foreign BFI licensed to carry out banking and financial transactions u/s 49, without obtaining prior approval of NRB, shall add in its name the word ‘Bank’, ‘Banking’, ‘Finance’, ‘Financial’ or any other similar words having the similar meaning.
3. Notwithstanding anything contained in Sub-section (2), in case of the following organization's such provision shall not be attracted:-
a. Any organization established or recognized as per the prevailing law or international treaties or prevailing customs;
b. Company applying for a license to carry on banking and financial transactions within 6 months from its incorporation as per the prevailing law.
4. Notwithstanding anything contained in Sub-section (2), banks or FIs, licensed to carry on banking and financial transactions as per the prevailing law before the enactment of this Act, can use the, name existing at the time of obtaining such license.
5. “B”, “C” & “D” class financial institutions shall use Development Bank, Finance Company & Microfinance Company respectively.
6. Institution licensed before this Act came into force using the name Micro Finance Development The bank shall use the name as per Sub-section (5).
33. Application to be made for License to Carry on Banking and Financial Transaction
1. BFI desirous to obtain a license to carry on banking and financial transaction as per this Act shall apply to NRB along with the prescribed fee.
2. Along with the application as per Sub-section (1) BFI shall submit the following details and documents:-
a. Copy of Certificate of Incorporation as per the prevailing law, MOA & AOA of BFI;
b. Particulars of an office building equipped with all the infrastructure necessary to carry out banking and financial transactions and if such building is to be rented, lease agreement of such building and sufficient grounds for carrying on banking and financial transactions;
c. Evidence of amount deposited at NRB in respect of shares promised to be subscribed by the promoters;
d. Bye-laws for, service, conditions, and benefits of the employee, financial administration & writing off credit;
e. Address of principal place of business and branches if already fixed;
f. Acceptance of conditions specified by NRB about banking and financial transactions;
g. Business plan of BFI including the business strategies and nature of transactions to be carried on, internal control & risk management procedure covering the organizational structure;
h. Name of the directors and executive-level officials of the BFI, and details that such persons are eligible to be the director or executive officials;
i. A promise to maintain the minimum capital as prescribed by NRB while the BFI is in operation;
j. A promise by BFI to implement a sound internal control system to manage all probable risks;
k. Any other details and documents as prescribed by NRB from time to time.
3. Following documents and details in addition to as mentioned in Sub-section (2) shall be submitted to NRB by BFI to be established in the joint investment of foreign BFI:-
a. In case of ‘A’, ‘B’, ‘C’, & ‘D’ BFI, approval of the foreign government, central bank, or regulatory or supervising authority as per the prevailing law of such foreign country of such foreign BFI to carry on banking and financial transactions in Nepal;
b. Details of deviation in any particulars that are required to be adhered to as per this Act, after obtaining the approval from NRB or applying for approval from NRB;
c. Any other details and particulars as required by NRB.
4. NRB may, after verification of details as per Sub-section (2) & (3), if it deems necessary, call for additional documents and particulars.
34. License can be Issued to carry on Banking & Financial Transactions
1. NRB may, within 120 days of receipt of the application, issue license of anyone class u/s 37, if after verification of all the details and documents along with application u/s 33 along with the bases NRB deems it appropriate to issue the same.
2. NRB shall verify the following matters before giving the license as per Sub-section (1):-
a. If it considers that, Issuance of license to carry on banking and financial transactions ensure healthy competition and effectiveness of financial intermediary transactions thus leading to the benefit of depositors;
b. If it considers that, BFI is competent in conducting banking and financial transactions subject to this Act, rules, regulations & direction framed under this Act, MOA & AOA of such BFI;
c. If, based on the application, documents and details received u/s 33 suggests that there is sufficient physical infrastructure;
d. If the executives, appointed or involved or to be appointed or to be involved, are competent to carry on banking and financial transactions.
3. License shall be effective from the date specified by NRB while issuing such license (if any) or the date of issuance of the license.
35. Power to Refuse Issuance of License
1. Notwithstanding anything contained in Section 34, NRB can refuse to issue a license to BFI in the following conditions:-
a. If the issuance of a license may hurt the stability of the financial system, healthy competition & reliability;
b. If it is not appropriate to grant the license to protect the interest of depositors;
c. If infrastructure to operate BFI is not completed;
d. If other details and conditions are not complied with as per this Act.
2. NRB shall, within 90 days from the date of application, notify the concerned BFI about the rejections of the application along with the reason for the rejection if it deems inappropriate to issue the license.
36. Power of NRB to Impose Conditions
1. While issuing license u/s 34, depending upon the present situation of BFI, healthy operation of financial transaction, and the interest of depositors, NRB may impose conditions. It shall be the duty of the concerned BFI to follow such conditions.
2. NRB may reduce or increase the conditions as per Sub-section (1), from time to time as per necessity.
37. Classifications of BFI
NRB, depending upon the minimum paid-up capital and transactions to be carried out by BFI applying for license u/s 33 and operational area, shall classify BFI as ‘A’, ‘B’, ‘C’ or ‘D’ and issue license accordingly. However, IDB shall not be classified in any class.
38. Conversion of Licensed Institution of Lower Class into Higher Class
1. Institution of lower-class desirous to be converted into a higher class of one level, shall apply to NRB along with prescribed particulars. However, ‘D’ class institutions cannot be converted into a higher class.
2. Subject to the following conditions, NRB, if it deems appropriate upon the examination of application and such particulars may grant pre-approval:-
a. Minimum paid-up capital requirement as specified by NRB to become a bank of the higher class has been complied with;
b. Minimum paid-up capital requirement of NRB has been complied since last 5 years, has been able to earn profit in the last 5 years, non-performing credits are within the limit specified by NRB since last 5 years;
c. Preliminary expense has been written off;
d. Shares that needs to be distributed to the general public has been offered and allotted;
e. GM has passed a special resolution to get converted into higher class;
f. All other conditions prescribed by NRB have been complied with.
3. NRB may grant license of higher classed BFI to the pre-approved bank & FI under this Act after the necessary amendment has been made in MOA & AOA of such BFI as per the prevailing law.
39. Notice to be Published
1. NRB shall, at each month, publish the list of banks or FIs carrying on banking and financial transactions through national daily or any other means.
2. In the notice as per Sub-section (1), date of starting transactions, paid-up capital, the status of issued capital, total loan, the status of non-performing credit, and any other matters NRB deems necessary may be published.
40. Special Provision Relating to Branch of Foreign Bank
1. Branch established by a rated foreign BFI after obtaining approval of NRB shall be deemed to be BFI established under this Act and all the provisions shall be equally applicable to such branch except otherwise provided by this Act, rules framed under this Act, direction, or order.
2. NRB can give necessary direction about the official taking on responsibility and official actually completing such responsibility regarding the functions, duties, power, responsibilities, liabilities, assets, accounting, etc. of the branch of a foreign bank.
3. While using the assets to discharge the liabilities of a branch of a foreign bank first priority shall be
given to liability within Nepal without adversely affecting the prevailing laws.
4. Notwithstanding anything contained in this Act, such branch can do wholesale banking
transaction.
5. Functions of a branch of a foreign bank shall be as prescribed by NRB.