Banks and Financial Institution Act, 2073 (Part-6)
Chapter-8: Provision relating to Supply and Recovery of Credit
55. Provision related to Supply of Credit
1. BFI shall supply credit only after specifying the purpose subject to the direction of NRB and the Credit Policy Guidelines as decided by BOD.
2. BFI shall supply credit against the securities of movable and immovable property acceptable to it or appropriate guarantee ensuring safekeeping of interest of itself and depositors.
3. BFI shall send a written request to the concerned officers to register, withhold or mortgage the movable or immovable property accepted by it as the security against the credit supplied in such a manner that the property cannot be registered or transferred in favor of any other person.
4. Concerned office shall register, withhold or mortgage the property upon receipt of the written request from BFI.
5. BFI shall, according to the direction of NRB, extend credit to the sector and area for the enhancement of economic condition of people of deprived sector or having low income and inhabitant of any special area of the country.
6. Terms, conditions, tenure, and rate of interest of credit supplied shall be as specified in the contract or document related to credit.
7. BFI shall obtain necessary identification documents, details of interest, if any, of the borrower, guarantor, in case of the borrower, is firm, company or institution, partners, directors, shareholders holding shares above the limit specified by NRB, a person having a joint venture or any interest and family details of all persons specified herewith and their interest if any.
8. BFI shall clearly specify the amount of borrowing, the interest rate applicable, late fee, and schedule of payment in the written contract or document related to such credit and it shall be provided to the borrower and guarantor if any.
9. Borrower can ask the BFI for the details of principal, interest, late fee, or any other fee paid or to be paid and the written contract or document executed at the time of lending the credit and BFI shall provide such details to the borrower.
56. Inspection for the Status of Utilization of Credit
BFI shall prepare the inspection schedule and make an inspection accordingly to know about the proper utilization of credit to the purpose for which it was availed.
57. Provision related to Recovery of Credit
1. In case, the borrower fails to abide by the terms and conditions as specified in the contract or a document executed at the time of borrowing the credit, the borrower fails to repay the principal, interest, and fee thereon, during the inspection u/s 56 borrower doesn’t seem to have utilized the credit for the purpose for which it was borrowed, notwithstanding anything contained in the credit agreement or document, BFI can recover the amount due by auctioning the security against which such credit has been extended or any other arrangement.
2. Notwithstanding anything contained in the prevailing law, in case the title of the security mortgaged with BFI has been relinquished by the borrower or the value of the security has declined due to any reason whatsoever, BFI can ask for the additional security within the time specified by such BFI and borrower shall pledge additional security within such time frame.
3. In case the borrower doesn’t provide additional security as per Sub-section (2) or such security is inadequate for the recovery of principal and interest, BFI can recover its principal and interest from any other movable or immovable property of the borrower or to which borrower has a title.
4. Any excess amount from the proceeds of an auction of security or any other arrangement after the deduction of principal, interest, fee, recovery expense shall be refunded to the concerned borrower.
5. BFI shall send a written request to the concerned officials to register or withhold the property auctioned in favor of the person accepting such property.
6. Notwithstanding anything contained in the prevailing law, the concerned office shall register or withhold the property in favor of the person accepting such property at auction upon the receipt o the written request as per Sub-section (5).
7. BFI can take under its custody/ownership the property which remains unaccepted at the auction.
8. BFI shall send a written request to the concerned officials to register or withhold the property auctioned in favor of it and the concerned office shall register or withhold the property in favor of BFI upon receipt of such written request, notwithstanding anything contained in prevailing law.
9. The concerned department of GON shall render necessary assistance, in case the previous owner of property accepted by any person at an auction or by BFI itself refuses/obstructs to allow the possession, to make it available for the possession.
10. Licensed institutions cannot stop the recovery process of credits, written off subject to the prevailing by-laws, it.
11. BFI shall send a written request to put the name of the borrower on a blacklist to CIC, in case the borrower doesn’t pay the principal, interest, and fee thereon as per the credit agreement.
12. If a credit cannot be recovered even upon taking the action for the recovery of such credit against any person, firm, company, or institution under this Section, the licensed institution concerned may recover such credit also from any other property of the borrowing person, firm, company, or institution situated abroad, institute action for the recovery of credit including the withholding of property following the laws in force.
13. If a credit cannot be recovered even upon taking all actions on recovery of credit under this Section, the licensed institution may make a request to the NRB for necessary provision to withhold and seize the passport of the borrower person and to deprive such borrower of any facilities to be provided by the State. Upon receipt of such request, NRB shall forward the matter, accompanied by its opinion, to the Government of Nepal for necessary action.
14. It shall not be deemed to be deprived of instituting any legal proceeding against the person who’s been instituted for the recovery of credit by any BFI.
Chapter-9: Provision relating to Accounts, Record, Particulars, and Report
58. Accounts and Records to be Maintained Accurately
1. Banks or FIs shall keep and maintain the books of accounts, records, and documents truly and fairly.
2. The books of accounts as per Sub-section (1) shall be maintained in a double-entry bookkeeping system and in such a manner to reflect the true and fair transactions of the business.
3. Licensed branch of foreign BFI shall maintain its books of accounts, records, and documents in a manner not affecting Sub-section (1) & (2) reflecting its assets, liabilities, income, and expense.
4. The books of accounts and records as per Sub-section (1) shall be maintained at the head office of the BFI unless otherwise permitted by NRB.
59. Preparation of Balance Sheet, Profit & Loss A/c
1. BFI shall prepare its balance sheet, profit & loss A/c, and cash flow statement in a manner and format prescribed by NRB.
2. A licensed institution shall, no later than 3 months after the expiry of a financial year, prepare & submit its balance sheet, profit and loss account, cash flow statement, and other financial statements to NRB and publish the same for the information of the public in a manner prescribed by NRB within such a time period. BFI shall within 9 months from the end of FY the balance sheet, P&L A/c of business both inside Nepal & outside Nepal and publish such in the format prescribed by NRB.
3. The financial statement of BFI shall consolidate the financial statements of a subsidiary company (if any) and show it in a consolidated and separate manner.
4. The balance sheet, P&L A/c, schedules thereon, way of certifying it & disclosure requirement shall be as per the format and direction provided by NRB.
5. In case NRB thinks the information submitted as per Sub-section (2) is incorrect, incomplete, false, or misleading, NRB may direct the concerned BFI to do the following:-
a. Publish the incomplete information;
b. Re-publish the false, incomplete, misleading, or incomplete information after making the correction; or
c. Making corrections and publishing the information afterward as per the direction of NRB.
60. Audit Committee
1. BOD of BFI shall constitute an Audit Committee comprising of 3 members chaired by a non-executive director.
2. The chairman of the BFI, chairman of the audit committee and CEO cannot act in the committee.
3. The members of the audit committee under Sub-section (1) shall not be involved in the day-to-day transactions like accepting the deposit, extending credit, investing in securities, budget approving, and expending.
4. Unless otherwise the meeting of the audit committee is called upon by the BOD, generally the meeting of the audit committee shall be held once each 3 months.
5. The scope and bylaws of the audit committee shall be as decided by such.
61. Functions, Duties and Powers of Audit Committee
The functions, duties & powers of the audit committee shall be as follows:-
a. Inspecting & supervising the accounts, budgetary and internal audit policy/procedures, the appropriateness of internal control policy and its implementation;
b. Causing to be conducted the internal audit of books of accounts, records, documents of BFI and verifying whether such are prepared according to the prevailing laws, the directive of NRB;
c. Causing to be conducted the regular management and work completion examination of management and operation of BFI to be assured that the prevailing laws applicable to it are regularly followed;
d. Inspecting and submitting the report to BOD, whether the business transactions of BFI are being carried out according to this Act, rules, regulation, policies under this Act.
e. Recommending the name of 3 auditors for the appointment of External Auditor;
f. Providing opinion on the matters required by BOD.
62. Audit
1. BFI shall within 4 months of the end of the FY conduct the external audit of the balance sheet, profit & loss A/c and other related annual financial particulars are prepared according to the format and method prescribed by NRB. Such financial statements shall be signed by at least 2 directors, CEO & auditor; Provided the audit of branches of foreign banks licensed by NRB shall be as prescribed by NRB.
2. BFI which couldn’t complete the audit as per Sub-section (1) can apply for a time extension to NRB along with reasons and it may extend the time period up to a maximum of 2 months.
3. The auditor shall submit his/her report to BFI audited by him/her and NRB.
63. Appointment and Remuneration of Auditor
1. The appointment of the auditor shall be at the GM of BFI.
2. An auditor shall not be appointed for more than 3 consecutive terms by GM.
3. Auditor according to Sub-section (1) of “A”, “B” & “C” class BFI shall be a Chartered Accountant and of “D” class FI shall be a Chartered Accountant or Registered Auditor.
4. In case the auditor is not or couldn’t be appointed by BFI as per Sub-section (1), NRB can appoint an auditor.
5. BOD shall appoint an auditor in case of vacancy at the office of auditor due to any reason.
6. Remuneration of the auditor of BFI shall be as decided by GM, NRB, or BOD depending upon the authority appointing the same.
64. Not Qualified to be an Auditor
1. Any of the following persons or any firm or company in which such person is a promoter or partner shall not be eligible to be appointed as an auditor of a licensed institution:
a. Promoter, Director, CEO or BFI and his/her family members;
b. Employee or internal auditor of BFI;
c. A person working as a partner to any director, CEO, or employee of BFI;
d. Debtor of BFI, a person having substantial interest, associated person or person having financial interest;
e. Person declared insolvent inside or outside of Nepal;
f. A person, firm, company, or institution having subscribed 1% or more of the shares in the concerned BFI;
g. Person convicted of a criminal offense involving moral turpitude and 5 years has not lapsed after serving the time in prison;
h. A person disqualified to be an auditor as per the prevailing law.
2. Person having appointed as auditor of BFI if found to be disqualified under Sub-section (1), such an appointment shall be suo moto void.
65. Particulars to be Provided
1. All the books of accounts, records, documents, and any other particulars related to the audit shall be provided to the auditor by BFI at any time.
2. Upon required by the auditor as per Sub-section (1), the person responsible shall provide true particulars or explanations to the auditor.
66. Functions, Duties & Power of Auditor
1. Functions, Duties & Power of auditor shall be as follows:-
a. Audit of books of accounts and financial statements;
b. Preparing & submitting the audit report comprising of audited accounts, balance sheet, P&L A/c to the BOD;
c. Informing the BOD about any damage or loss due to any material irregularities in the operation of the business of BFI;
d. Informing NRB in case there is the probability of following situations:-
1. Violation of, terms and conditions specified at the time of granting a license, this Act, rules, regulation, by-laws, and direction under this Act;
2. Adverse effect on the day-to-day functions of BFI;
3. Preventing auditor from presenting the audit report or submitting false audit report.
2. Auditor shall have the right to inspect the books of accounts, documents, records, and vouchers at any time during the audit of BFI and auditor can ask for information and explanation to the employees of BFI as required by him/her on the course of fulfilling his duty adequately.
3. Auditor, in his report, shall disclose the following information clearly:-
a. Whether or not the explanation has been received on the matters sought for;
b. Whether or not the financial statements like balance sheet, profit, and loss A/c, cash flow the statement, off-balance-sheet transactions, are prepared as per the method & format as prescribed by NRB and such information is agreeing with the books of accounts, records, documents;
c. Whether or not the books of accounts, records, and documents have been kept as per the prevailing law;
d. Whether or not any employee of the bank has acted against prevailing law or irregular the transaction has been carried out or any damage has been caused to the BFI;
e. Whether or not the credit has been written off as per credit writing off policy or the direction of NRB;
f. Whether or not the transaction of the BFI has been carried out nicely;
g. Matters that need to be communicated to the shareholders;
h. Any other matters that need to be disclosed by the auditor as per the prevailing law and NRB;
i. Any other suggestions that the auditor wants to provide.
4. After receiving the audit report, NRB may, if necessary, direct the auditor of BFI to perform the following additional functions:-
a. To submit the additional information as deemed necessary by NRB;
b. To widen the scope of audit on the transaction of BFI or its subsidiary company;
c. To examine any particular area as specified or recommended to BFI by NRB.
67. Recommendation for Punishment of Auditor
1. NRB can recommend the concerned supervising authority to remove the name of the auditor so that he/her could not be appointed, who’s not fulfilled his/her duty as per this Act, for 1 to 3 years in any BFI.
2. Upon receipt of recommendation as per Sub-section (1), the concerned supervising authority shall punish the auditor as per the prevailing law.
68. Auditor to Certify
1. The auditor shall mark the accounts, records, books, and ledgers audited by him or her by affixing his or her signature thereon and also mentioning therein the date on which he or she audited them.