Banks and Financial Institution Act, 2073 (Part-3)
Chapter-4: Provision related to BOD & CEO
14. Formation of BOD
1. BOD of BFI shall consist of not less than 5 and not more than 7 directors.
2. The appointment of directors shall be made at the GM subject to this Act and AOA of such BFI.
BUT,
a. Promoter shall appoint directors till the first AGM of the BFI;
b. BOD can appoint the director, whereas the office of a director becomes vacant in between 2 consecutive AGMs;
c. In the case of institutional shareholder such institution can, based on the proportion of its shareholding, nominate director(s) and one individual shall not be nominated for director of more than 1 BFI;
d. Notwithstanding anything contained in Clause (c), it shall not be deemed to be restricted for a director of any BFI to become the director of an IDB;
3. BOD shall appoint at least one person, from among the persons having qualification as per Section 17 as an independent director, and notify the same at the 1st GM held after such appointment. However, no person among the promoter, director, or shareholder holding more than 0.1% of shares and his/her family members shall be appointed as an independent director.
4. Notwithstanding anything contained in Sub-section (1) & (3), more than 1 person from the same family members shall not be allowed to become directors in a BFI.
5. Chairman of the BOD shall be the person voted among the directors.
6. Company, institution, foreign BFI holding the shares of BFI, while appointing the director on the proportion of shareholding can appoint an alternate director who shall act in the absence of the original director.
15. Tenure of Office of Director
1. The tenure of the office of director shall be as specified in AOA subject to a maximum of 4 years and the director can be re-appointed/nominated.
2. However, an independent director shall be appointed for a single tenure only.
3. Notwithstanding anything contained in Sub-section (1), Executive Chairman or Managing Director can hold the office maximum of up to 2 tenures only.
16. Qualification of Director
1. Person to be appointed as director shall have the following qualifications:-
a. Having at least 5 years of experience as an Officer GON or director or officer of foreign or national BFI or institutions of the related sector;
b. Holding Doctorate Degree and having at least 3 years of experience as an Officer GON, or director or officer of foreign or national BFI or institutions of the related sector;
c. Completed Master’s Degree in the specified subject.
2. Notwithstanding anything contained in Sub-section (1), educational qualification and experience for director of ‘D’ class FI shall be as specified by NRB from time to time.
However, the qualification of an independent director shall be as specified in Section 17.
17. Qualification of Independent Director
Bank & FI, while appointing an independent director, appoint form the person possessing the following qualifications:-
a. Person having completed Master’s Degree in the prescribed subject and having experience as prescribed by NRB, in respect of ‘A’ class and national level ‘B’ class bank;
b. Person having completed Bachelor’s Degree in the prescribed subject and having experience as prescribed by NRB, in respect of ‘B’ class bank other than national level and ‘C’ class FI;
c. Person having prescribed educational qualification and experience for ‘D’ class Micro-Finance.
18. Disqualification of Director
1. Following persons shall not be qualified to be the director of BFI:-
a. Person not completed the age of 25 years;
b. Person of unsound mind or insane;
c. Person declared insolvent either in Nepal or outside Nepal;
d. Person who has been blacklisted about any transaction with BFI either in Nepal or outside Nepal and a period of 3 years has not elapsed from the date of delisting from blacklist;
e. Person currently holding the chair of director or employees in any BFI or an institution collecting deposit or insurance company;
f. Borrower of concerned BFI, auditor or advisor holding the office, any person/firm/company having an interest in any contract with concerned BFI;
g. Merchant Banker or person holding the membership to act as a securities dealer in Stock Market;
h. Person currently holding the office of director in a licensed institution (BFI);
i. Person not subscribing the minimum shares to be subscribed to be eligible to become the director of the concerned BFI under its AOA;
j. Serving employee of GON, an institution where GON has a substantial interest, NRB or BFI; Provided that, this provision shall not be applicable for the nomination of director in IDB or microfinance in which GON, or institution having the substantial interest of GON, NRB or BFI;
k. Person who’s not cleared his tax as per the prevailing law;
l. Person who’s been convicted, either in Nepal or foreign, of stealing, fraud, falsification, alteration, corruption, or any offense whether criminal or banking involving moral turpitude and 10 years has not elapsed from the date of such conviction;
m. Person who has been punished by supervising authority as per the prevailing law for acting against prevailing law and 5 years has not elapsed from the date of such punishment;
n. In case of Independent director, a person holding promoter share or 0.1% share of concerned BFI;
o. Any dues of penalty or penalty, as per the order of the court, are yet to be settled.
2. Notwithstanding anything contained in Clause (m) of Sub-section (1), the person who is the employee/personnel of BFI can be the director of Subsidiary Company of such BFI.
19. Situation where Director cannot Hold Office
1. In the following cases, no person can hold the office of Director of BFI:-
a. Person, not having qualification as per Section 16 & 17 or disqualified as per Section 18;
b. Resolution proposed at GM, by shareholders holding not less than 51% of shares of the group from which such director has been appointed, is passed by the majority;
“Group” means, either promoter group or general public shareholder’s group.
c. Resignation given by director has been approved;
d. Any act is done against this Act or the direction of NRB;
e. NRB has declared incapacitated & given the direction to remove, the director from the office Ndue to the acts done against the interest of BFI or depositors;
2. BFI shall notify NRB if the director is deemed to be incapacitated to hold the office as per this act or NRB Act, 2058 or the director no longer holding the office, within 15 days.
3. NRB, after necessary verification, can give the direction in case of notification as per Sub-section (2) regarding incapacitation of director to hold the office.
20. In Respect of Person holding Constitutional Position
No person holding the Constitutional Position shall hold the position of director or CEO of any BFI till he/she holds such a constitutional position.
21. Meeting of Board
1. Meeting of BOD shall be held at least 12 times in a year.
Provided that, not more than 60 days gap shall be there in between 2 consecutive meetings.
2. Chairman shall call the meeting of BOD at any time upon receipt of a written request by at least 1/3rd of the directors.
3. Chairman shall chair the meeting of BOD. In the absence of the Chairman, the director nominated by the majority of directors shall chair the meeting of BOD.
4. No meeting shall be held unless at least 51% of the total directors are present.
5. All the decisions of BOD shall be decided by the majority and in case of a tie, the Chairman shall have the casting vote.
6. A separate minute of the meeting of BOD regarding the name of directors, agenda discussed & decision thereon shall be prepared, signed by all directors, and kept.
7. Provided that, if any director willing to put a different opinion in respect of any decision, it can be recorded in minute book after duly signing the same.
22. Functions, Duties & Rights of the BOD
1. All the functions, duties & rights of BFI as per this Act, prevailing law, MOA & AOA except the matters to be conducted at the GM shall be vested upon the BOD.
2. It is the responsibility of BOD, to operate the BFI in the interest of depositors, customers, and general public shareholders by managing the overall risk, to ensure no interference in the day-to-day operation of BFI like accepting the deposit, extending credit, investing, managing human resources, and budgeting the expense by developing and implementing good corporate governance.
3. Other functions, duties & responsibilities of BOD shall be as follows:-
a. Developing and implementing policy and direction being under this Act, prevailing law and
directives of NRB to ensure the smooth operation of bank & FI;
b. Developing and implementing sound internal control system and risk management policy to
mitigate risks as per the policy and strategy of BFI;
c. Ensuring necessary policy is in place to operate BFI, regularly supervising the operation of BFI and operating it soundly;
d. Developing clear organizational structure & policy of the BFI and implementing the same;
e. Presenting the Annual Report of BFI containing the audited financial statements at the AGM;
f. Any other functions directed by NRB from time to time.
23. Responsibilities and Duties of Director
1. No director shall act upon or cause to be acted upon any acts, through BFI or in the course of performing functions of BFI, resulting in personal benefit.
2. Director shall be held personally liable for any acts done by him/her outside the authority vested upon him/her.
3. Directors shall take on responsibility for risk management and internal control by implementing sound business strategies.
4. No director shall interfere in the day-to-day operation of the BFI.
5. Every director shall follow the direction provided by NRB from time to time.
24. Details of Director to be Obtained
BFI shall obtain the following particulars from every director:-
a. Name, Surname, Address, Educational Qualification, Occupation & Experience;
b. In case the director is a director or employee in any other organization, a statement containing the position and duties;
c. Name of the family members of the director and particulars of an associated person, financial interest and shareholding of director and his/her family members in any organization;
d. Details of share & debentures of BFI or its holding/subsidiary company subscribed by director and his/her family members;
e. If any family member of the director is an activity in BFI as an official or employee, details of such;
f. Details of the contract entered or to be entered between the BFI and director or his/her family member;
g. Details of any interest or involvement in the appointment of CEO, Company Secretary, and Auditor;
h. A written authorization provided to NRB, regarding the examination of the financial or occupational background of director and exchange of information for the same;
i. Self-declaration that the person is eligible as per this Act to become the director;
j. Any other details to be submitted to NRB or BOD as prescribed by NRB from time to time.
25. Disclosure by Director
1. Director shall, within 7 days of appointment, submit the details to the BFI as per Section 24;
2. BFI shall keep a separate record of details as per Sub-section (1).
3. If a director or his/her family members have, direct or indirect substantial shareholding of BFI or any other interest, such information shall be provided at the first meeting of BOD.
4. Director shall notify, at the meeting of BOD or any other sub-committee, about any interest in the matters to be discussed, before commencing the discussion on such matters and abstain himself/herself from voting in such matter.
5. In case of any change in information as per Sub-section (1) or change of director, NRB shall be notified within 15 days.
6. NRB shall have the right to examine the details as per Sub-section (1) if it is deemed necessary.
26. Power to Form Sub-committee
1. BOD can form one or more sub-committee(s), being under the direction of NRB, to carry out specific purposes other than acts which shall need to be done by specific authorities or personnel.
However, the chairman of BOD shall not be allowed to be a member of such sub-committee(s).
2. Functions, duties, power, policy, remuneration for participating in meeting or sitting fee shall be as specified by the BOD and the acts done by it and expense for it shall be disclosed in the Annual Report.
27. Delegation of Authority
The BOD may delegate, any of the powers vested upon it, to any director, sub-committee formed u/s 26, CEO, or any person acting as CEO, on the condition that such powers shall be exercised only upon direct supervision and direction of BOD, by specifying the reason and necessity.
28. Remuneration & Facilities to Directors
Sitting fee and other facilities shall be as specified in AOA.
29. Appointment and Conditions of Service of CEO
1. BOD shall appoint a CEO to manage the BFI subject to this Act, MOA & AOA of BFI.
2. The tenure of the CEO shall be of 4 years and can be re-appointed.
3. The provision of Sub-section (2) shall be applicable only after this Act comes into force.
4. Notwithstanding anything contained in Sub-section (2), the BOD may, if the performance of the CEO is found to be unsatisfactory, at any time remove the CEO from the office. However, before removing the CEO from his/her office, a reasonable opportunity of being heard shall be provided.
5. NRB shall be notified within 7 days of the appointment of CEO and such CEO shall possess the following qualifications & experience:-
a. Having completed Master’s Degree in Management, Banking, Finance, Monetary, Economics, Commerce, Accountancy, Statistics, Account, Mathematics, Business Administration or Law;
b. Having completed Chartered Accountancy or Bachelor in Management, Banking, Finance, Monetary, Economics, Commerce, Statistics, Accountancy, Mathematics, Business Administration of Law and possessing experience of at least 10 years as an officer or higher post in banking or financial sector, government agency, corporation, university or international an organization operating in the related sector; However, for ‘D’ class financial institution, the CEO shall possess such educational qualification and operating experience as specified by NRB.
c. Standard benchmark as specified by NRB shall adhere to about the appointment of CEO;
d. Person not disqualified u/s Section 18(1);
However, disqualification u/s Section 18(1) (i) & (n) shall not be attracted in case of appointment of CEO.
6. NRB can remove the CEO and direct the BFI to appoint a new CEO in case the CEO appointed u/s 29(1) seems not to be qualified.
7. Remuneration, terms and conditions and other facilities of CEO shall be as specified by BOD and it shall be specified at the time of appointment.
8. No CEO of a BFI can act as a CEO, management personnel, or employee of another business institution. However, in case such BFI has made an investment in IDB, it shall not be deemed to be restricted such CEO to be appointed as director of IDB (Infrastructure Development Bank)
30. Functions, Duties & Power of CEO
1. Functions, duties & power of CEO shall be as follows:-
a. Exercising power as conferred by BOD, implementing the decisions of BOD, and supervising and controlling the business transactions of BFI;
b. Preparing the annual budget and business plan/target and submitting the same before BOD for approval;
c. Managing necessary human resources subject to the Human Resource bye-law of BFI;
d. Implementing or causing to implement the decisions adopted at GM;
e. Operating the BFI subject to this Act and NRB directives, and effectively managing the internal control and risk;
f. Timely submitting the details, documents, decisions, etc. to NRB subject to this Act, directives of NRB, MOA & AOA of BFI;
g. Operating the BFI with intent to maximizing the benefits to depositors, shareholders, and BFI;
h. Implementing the appropriate yardsticks/criteria/standards for the management of BFI as per the policy decided by BOD.
2. CEO shall be responsible towards BOD in respect of his functions