Banks and Financial Institution Act, 2073: Chapter-1: Preliminary

BAFIA English Krishna Niraula (CA)
Banks and Financial Institution Act, 2073
This Act has been introduced to increase the trust of general public over banking and financial
institution, to promote the rights and interest of depositors, to provide quality and reliable
banking and financial intermediary service to the general public, to promote healthy competition
among banks and FIs, minimizing risks related to banks & FIs, to boost the economy of Nepal via
stable banking system & to make necessary rules & regulation for supervising and inspecting the
banks & FIs.
Chapter-1: Preliminary
1. Short Title, Extension & Commencement

1. The name of the Act shall be “Banks & Financial Institution Act, 2073”.
2. This Act shall be applicable to the whole of Nepal and the offices/branches of banks & FIs opened
in foreign country by banks & FIs registered in Nepal.
3. This Act shall come into force immediately.
2. Definitions
Please see the Act for the same.
Chapter-2: Incorporation of Banks & FIs
3. Incorporation of Banks & FIs

1. Any person who wants to incorporate a bank or FI to carry on the banking & financial transactions
under this Act, may do so by getting such bank or FI registered as a public limited company as per
the prevailing law.
However, banks & FIs already in operation shall not be required to get registered as per this sub-
section.
2. The authority empowered to register a company shall register under Section 3(1) subject to
Section (4).
4. Approval to Incorporate Bank or FI
1. Concerned person shall, before applying for registration u/s 3(1), apply for the approval of NRB
by submitting the following documents & paying the fee prescribed:-
a. MOA of proposed bank or FI;
b. AOA of proposed bank or FI;
c. Feasibility study report of proposed bank or FI;
d. Personal details of promoters as per the format prescribed by NRB;
e. A certified copy of agreements between promoters prior to the incorporation of Bank in relation
to the incorporation if any;
f. Details of sources of investment along with tax clearance certificate of the Fiscal Year (FY) prior
to the FY of making the application, of the promoters;
g. Details whether the promoters, are insolvent or not either in Nepal or Foreign, have borrowed
any sum from any bank or FI, have been blacklisted or not, if blacklisted whether 3 years have
been lapsed or not;
h. Self-declaration by the promoter regarding no cases of fraud or any act which is regarded as
an offence as per the prevailing law is not instituted or not penalized on the same, either in Nepal
or in any other country;
i. Details whether the promoters have been punished or penalized by any inspecting or
supervising authority or officer, whether the license of organization or company in which
promoters are involved has been suspended or cancelled, or forced punishment or in the process
of same;
j. Details of family of the promoter specifying the name & relationship of promoters, or if
promoters are involved in an organization as shareholders, directors or employee, details
including the level of each promoters;
However, in case the promoter is an firm or company, the details of major partners or
shareholders having substantial interest and influence in the said firm or company, audit report
and tax clearance certificate for previous 3 FYs;
k. A written power of attorney in favour of NRB, in order to enable NRB, to verify or cause to verify
the financial & business history of the promoters, and exchange information on the same;
l. Assurance from the promoter regarding insurance of deposit up to the level prescribed by NRB;
m. Any other details and documents as prescribed by NRB from time to time.
2. NRB, if it deems appropriate, may within 120 days from the receipt of application along with
prescribed details and documents as per sub-section (1) give the approval with or without
specifying any conditions thereon.
3. Notwithstanding anything contained in sub-section (2), no approval shall be given to the firm or
company for the incorporation of bank or FI, in case following person or his/her family members
is having substantial interest in the said firm or company:-
a. Punished during the regular supervision and inspection;
b. Punished on banking offence;
c. Punished on offence related to fraud;
d. Punished on offence related to money laundering and financing terrorists activates;
e. Punished on offence related to corruption;
f. Punished on offence related to human trafficking, kidnapping, rape or such other serious
offences.
5. Prior Approval for incorporating Bank or FI on Foreign Investment
1. For the purpose of pre-approval of NRB to establish a bank or FI by a foreign bank or FI in joint
investment with a corporate body incorporated in Nepal or Nepalese Citizen under this Act, shall
submit following additional information & documents along with prescribed fee in addition to
details u/s 4(1):-
a. MOA, AOA, copy of certificate of registration in foreign country & capital structure of foreign
bank or FI;
b. Copy of license to carry on banking & financial transaction in foreign country of foreign bank or
FI;
c. Details of principal place of business;
d. Certified copy of audited financial statements (Balance Sheet, Profit & Loss A/c) of previous 3
financial years of foreign bank or FI;
e. Details regarding proposed business plan in Nepal, business strategy and category of
transaction to be carried on, internal control & risk management policy;
f. Minute of Board of foreign bank or FI deciding for incorporating bank or FI in Nepal and approval
provided by the regulating authority of such country;
2. NRB, if it deems appropriate, may within 120 days from the receipt of application along with
prescribed details and documents as per sub-section (1) give the approval for incorporating bank
or FI by investing in share capital up to the limit specified by it or on joint investment with or
without specifying any conditions thereon.
3. Foreign bank or FI after obtaining prior approval from NRB on fulfilling the procedures specified
by NRB can, on joint investment invest in the share of any Nepalese bank or FI.
4. Notwithstanding anything contained in this Act, any investment by foreign bank or FI in bank or
FI established in Nepal after obtaining the approval of NRB prior to the enactment of this Act
shall be deemed to be invested as per this law.
6. Prior Approval to Open a Branch of Bank or FI
1. Prior approval of NRB shall be obtained before opening any branch or office by International
Rated foreign bank or FI in Nepal for carrying out banking & financial transaction or any non-
banking financial transaction.
2. Application along with prescribed fee and capital shall be submitted to NRB.
3. While submitting application as per sub-section (2), following documents and details shall be
submitted in addition to the documents and details u/s 5(1):-
a. A written assurance from the BOD of such foreign bank or FI stating that the amount required
to settle all the liabilities during the operation of branch or contact office or agency shall be
provided as required by NRB;
b. Details of address of proposed branch office of such foreign bank or FI;
c. Details of employees of proposed branch office of such foreign bank or FI;
4. NRB after verifying the details and documents as per sub-section (3), if deems necessary, may
call for additional details and documents.
5. NRB, if it deems appropriate to grant approval, may do so, after verifying additional documents
as per sub-section (3) and documents as per sub-section (4), within 120 days from the date of
receipt of application with or without prescribing any conditions thereon.
6. Such foreign bank or FI shall open branch office as per the prevailing law of company after
obtaining approval as per sub-section (5).
7. Branch office of foreign bank or FI shall after registering as per sub-section (6), apply to NRB for
obtaining approval for carrying on banking and financial transaction in Nepal, accompanying with
the following documents and details along with prescribed fees:-
a. Certificate of Incorporation as per prevailing companies law;
b. Approval for incorporating branch office in Nepal from the foreign government, central bank or
supervising or regulating authority of such foreign bank or FI;
c. Details of any deviation (if any), of any things that should have been followed as per this Act,
from the date of application to NRB or pre-approval from NRB;
d. Any other details as required by NRB.
8. NRB may, within 90 days from the date of application for approval for carrying on banking and
financial transaction, grant approval after verifying application as per sub-section (7).
9. NRB can prescribe necessary conditions while granting approval as per sub-section (8).
10. Bank & FI can, after obtaining approval from NRB, open branch office outside Nepal.
11. NRB may, from time to time, issue necessary policy for opening branch office outside Nepal as
per sub-section (10).
7. Power to Refuse to Grant Approval
1. NRB can refuse to grant approval for incorporating bank or FI on the following situations:-
a. Name of the proposed bank or FI or banking and financial transaction to be carried on by it
appears to be inappropriate in view of public interest, religion, caste, community etc.;
b. The objectives of proposed bank or FI is contrary to any prevailing law;
c. Incorporation of proposed bank or FI is technically infeasible;
d. If on the study of feasibility report, details and documents and other infrastructure submitted
by the proposed bank or FI, no ground for believing that it can carry on banking and financial
transactions in a healthy & competitive manner appear;
e. All promoters have not, declared their name, address along with shares to be subscribed in the
presence of witness, and not signed the MOA and AOA of proposed bank or FI;
f. Share investment per person and share capital structure is not as prescribed by NRB from time
to time;
g. If found against the policy/circular of incorporation and approval as issued by NRB;
h. Conditions stipulated by NRB were not complied.
2. If the pre-approval of proposed bank or FI is to be denied on the basis of sub-section (1), NRB
shall notify the applicant specifying the grounds for denial.
Chapter-3: Dealing in Securities
8. Prospectus
1. Before issuing its securities to the public, every bank or FI shall obtain approval from Securities
Board and register its prospectus with NRB.
2. Until the registration of Prospectus as per sub-section (1), no prospectus shall be published by
such bank or FI or any other person on its behalf.
3. Notwithstanding anything contained in sub-section (1), no prospectus shall be registered by NRB
until it receives in writing, the information regarding approval for registration of prospectus.
9. Share Allotment
1. Bank or FI shall at least, 30% of its issued capital, set aside for subscription by general public.
“General Public” here means natural person only.
2. Shares set aside as per sub-section (1) shall be issued to general public within the prescribed time
period. If any shares remain unsubscribed by general public, such shares can be issued to firm,
company or institution.
3. In addition to the limit specified in sub-section (1), bank or FI can set aside additional 0.5% of its
issued capital only to its employees.
4. Bank or FI if desires to do so, can convert promoter shares into general shares, by following the
procedures laid down by NRB. However the promoter share shall not at any time be less than
51%.
“Promoter Share” shall promoter shares as prescribed by NRB.
“General Share” shall mean shares other than promoter share.
5. Notwithstanding anything contained in sub-section (1), it shall not be mandatory for bank or FI
having substantial interest of GON or Infrastructure Development Bank (IDB), to maintain the
shareholding pattern as per sub-section (1).
6. Any foreign bank or FI or any bank or FI established under the joint investment of foreign
institutions or IDB, shall issue shares to the general public as prescribed by NRB.
7. While issuing shares of bank or FI to general public, 100% of Face Value of such shares shall be
called at the time of application.
10. Dealing in Securities
1. The prevailing provisions in respect of sale, allotment & exchange shall be followed by bank or FI
while issuing its securities to general public.
2. Bank or FI shall, within 7 days of entering into an agreement for dealing in securities with
institution dealing in securities, forward to NRB a copy of such agreement.
3. Prior approval of NRB shall be obtained before issuing any debenture or financial instruments by
banks or FIs.
4. Before providing approval as per sub-section (3), NRB may stipulate terms and conditions and it
shall be the duty of such bank or FI to follow the same.
11. Selling of Shares and Pledging
1. The promoter of a bank or FI shall not be allowed to sale or pledge the shares in his/her/its name
at least before 5 years from the date of starting banking or financial transactions by such bank or
FI.
2. Notwithstanding anything contained in sub-section (1), if due to any reason a special
circumstances has arisen or the promoter has been declared blacklisted on transaction made
with any other bank or FI, shares of bank or FI held by promoter can be transferred between
other promoters after obtaining the approval from NRB.
“Special Circumstance” means, the meeting of Board couldn’t be held for consecutive 3 times
due to the lack of quorum or Board could not reach to a decision due to non-agreement between
directors.
3. Promoter can, after obtaining approval from NRB, sale or pledge the share in his/her/its name in
between promoters, after, 5 years has been completed from the date of start of banking or
financial transaction and issuing shares to general public.
However, no approval of NRB is required for promoter holding shares less than 2% of issued
capital.
4. Notwithstanding anything contained in Section 9 (1) & (2), promoter shares can be converted
into general shares after obtaining prior approval from NRB, after 10 years has been completed
for the start of banking & financial transaction by such bank or FI considering the overall effect
in capital market, banking & financial sector.
5. Prior approval of NRB is required in case promoter is an institution, for major change in
shareholders having substantial interest, selling and transferring of shares of such institutional
promoter.
However, no approval of NRB is required for institutional promoter holding shares less than 2%
of issued capital.
12. Restriction in dealing in Securities
1. Directors, CEO, Auditor, Company Secretary, or employee directly involved in management and
finance of bank and FI, while being on the office or up to 1 year from the date of retirement, shall
not, either in his/her own name or in the name of the family members of such person or any
other person or firm or company or institution in which such person has substantial interest, be
allowed to, purchase or sell, cause to purchase or sell, pledge, cause to pledge, gift, exchange or
deal in any manner whatsoever, in the securities of such bank or FI.
Provided that such restriction shall not be imposed in case of, bonus shares, right shares, shares
allocated for employees, newly issued shares, following the direction of NRB, selling of whole of
the shares held by an institution being director or having right to appoint director, merger or
acquisition as per Chapter-10, transaction of shares in between directors of bank or FI whose
operation and management has been affected after obtaining prior approval of NRB, or dealing
in shares during restructuring or liquidation of problematic bank or FI.
2. In case of violation of sub-section (1), such bank or FI shall forfeit the shares and sell or transfer
the same as per the direction of NRB.
13. Prohibition on Purchase of Own Shares by Bank or FI
1. Bank or FI shall not buy or extend credit on the security, of its own shares.
2. Notwithstanding anything contained in sub-section (1), on the following situations, bank or FI
may buy back its own shares after obtaining prior approval from NRB, so that the buyback would
be from the free reserve available for distributing dividend not exceeding the % prescribed by
NRB:-
a. If the shares issued by bank or FI have been fully paid up;
b. If the shares issued by bank or FI have already been listed on Securities Board;
c. If there is a provision for buyback of its own shares in the AOA of the bank or FI;
d. If a Special Resolution has been passed at the AGM of bank or FI for buying back its own shares;
e. If the Debt Equity Ratio (Ratio of debt to share capital and free reserve) does not exceed 2.00
after buying back own shares;
“Debt” means, all amount of secured and unsecured borrowing made by bank or FI.
f. If value of buying back shares do not exceed 20% of issued share capital and free reserve of bank
or FI;
g. If the direction issued by NRB in respect of Capital Fund is not contravened due to such buyback;
h. If the direction issued by NRB from time to time related to buyback of shares is not contravened;
3. To buy-back its own shares as per sub-section (2), bank or FI shall apply to NRB disclosing
following details:-
a. Reason, necessity, deadline and method of buy-back of shares;
b. A statement of evaluation of possible impact of buyback of shares on financial situation of the
bank or FI;
c. Number, per unit value and class of shares intended to be bought back;
d. The minimum and maximum value of shares to be bought back as per Clause (c) and its source
of payment;
e. Any other details prescribed by NRB in respect of buyback of shares;
f. Any other details to be disclosed as per prevailing law.
4. After verifying the application and details as per Sub-section (3), if it deems appropriate, NRB
may give approval for buyback to such bank or FI.
5. After obtaining approval as per Sub-section (4), the bank or FI may, by any of the following
method buyback its shares within 6 months from the date of approval or 12 months from the
date of passing Special Resolution at GM whichever is later:-
a. Buying from securities market;
b. Buying proportionately from the existing shareholders.
6. Bank or FI shall, after buying back the shares, submit a statement of number of shares bought
back, amount paid on the same and other relevant details, within 30 days buying back of shares.
7. Amount equal to the face value of shares bought back as per Sub-section (5) shall be reduced
from issued capital and shown separately in ‘Capital Redemption Reserve’ (CRR) Fund and such
amount shall be kept as if it is paid up share capital.
8. Bank or FI shall, within 120 days of buyback, cancel the shares bought back as per Sub-section
(5).
9. Other provisions related to buyback shall be as prescribed by NRB.
Chapter-4: Provision related to BOD & CEO
14. Formation of BOD

1. BOD of bank or FI shall consists 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 bank
or FI.
BUT,
a. Promoter shall appoint directors till the first AGM of the bank or FI;
b. BOD can appoint the director, whereas the office of director becomes vacant in between 2
consecutive AGMs;
c. In 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 bank or FI;
d. Notwithstanding anything contained in Clause (c), it shall not deemed to be restricted for a
director of any bank or FI to become the director of a IDB;
3. BOD shall appoint at least one person, from among the persons having qualification as per
Section 17 as 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 director in a bank or FI.
5. Chairman of the BOD shall be the person voted among the directors.
6. Company, institution, foreign bank or FI holding the shares of bank or FI, while appointing the
director on proportion of shareholding, can appoint an alternate director who shall act on the
absence of original director.
15. Tenure of Office of Director
1. The tenure of the office of director shall be as specified in AOA subject to the maximum of 4 years
and director can be re-appointed/nominated.
2. However, 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 up to 2 tenures only.
16. Qualification of Director
1. Person to be appointed as director shall have following qualifications:-
a. Having at least 5 years of experience as an Officer GON, or director or officer of foreign or
national bank or FI or institutions of 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 bank or FI or institutions of related sector;
c. Completed Master’s Degree in 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 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
following qualifications:-
a. Person having completed Master’s Degree in 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 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 bank or FI:-
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 in relation to any transaction with bank or FI either in Nepal or
outside Nepal, and a period of 3 years has not lapsed from the date of delisting from blacklist;
e. Person currently holding the chair of director or employees in any bank or FI or an institution
collecting deposit or insurance company;
f. Borrower of concerned bank or FI, auditor or advisor holding the office, any
person/firm/company having interest in any contract with concerned bank or FI;
g. Merchant Banker or person holding the membership to act as securities dealer in Stock Market;
h. Person currently holding the office of director in a licensed institution (bank or FI);
i. Person not subscribing the minimum shares to be subscribed to be eligible to become the
director of the concerned bank or FI pursuant to its AOA;
j. Serving employee of GON, institution where GON has substantial interest, NRB or bank or FI;
Provided that, this provision shall not be applicable for the nomination of director in IDB or
microfinance in which GON, or institution having substantial interest of GON, NRB or bank or FI;
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 offence whether criminal or banking involving moral turpitude and
10 years has not been lapsed 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 been lapsed from the date of such punishment;
n. In case of Independent director, person holding promoter share or 0.1% share of concerned
bank or FI;
o. Any dues of penalty or penalty, as per the order of court, is yet to be settled.
2. Notwithstanding anything contained in Clause (m) of Sub-section (1), the person who is the
employee/personnel of bank or FI can be the director of Subsidiary Company of such bank or FI.
19. Situation where Director cannot Hold Office
1. In the following cases, no person can hold the office of Director of bank or FI:-
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 majority;
“Group” means, either promoter group or general public shareholder’s group.
c. Resignation given by director has been approved;
d. Any act done against this Act or the direction of NRB;
e. NRB has declared incapacitated & given the direction to remove, the director from the office
due to the acts done against the interest of bank or FI or depositors;
2. Bank or FI shall notify NRB, if the director is deemed to be incapacitated to hold the office as per
this Act or NRB Act, 2058 or 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
bank or FI till he/she hold such 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 written request by at least
1/3rd of the directors.
3. Chairman shall chair the meeting of BOD. In the absence of Chairman, the director nominated by
majority of directors shall chair the meeting of BOD.
4. No meeting shall be held unless at least 51% of total directors are present.
5. All the decisions of BOD shall be decided by the majority and in case of 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 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 bank or FI 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 bank or FI in the interest of depositors, customers
and general public shareholders by managing the overall risk, to ensure no interference in day-
to-day operation of bank or FI like accepting deposit, extending credit, investing, managing
human resource 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 in order 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 bank or FI;
c. Ensuring necessary policy are in place to operate bank or FI, regularly supervising the operation
of bank or FI and operating it in sound manner;
d. Developing clear organizational structure & policy of the bank or FI and implementing the same;
e. Presenting the Annual Report of bank or FI 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 bank or FI or in the course
of performing functions of bank or FI, 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 strategy.
4. No director shall interfere in the day-to-day operation of the bank or FI.
5. Every director shall follow the direction provided by NRB from time to time.
24. Details of Director to be Obtained
Bank or FI shall obtain the following particulars from every director:-
a. Name, Surname, Address, Educational Qualification, Occupation & Experience;
b. In case director is 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 associated person, financial
interest and shareholding of director and his/her family members in any organization;
d. Details of share & debentures of bank or FI or its holding/subsidiary company subscribed by
director and his/her family members;
e. If any family member of director is activitying in bank or FI as an official or employee, details of
such;
f. Details of contract entered or to be entered between the bank or FI 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 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 bank or FI as per Section
24;
2. Bank or FI shall keep the separate record of details as per Sub-section (1).
3. If director or his/her family members, have, direct or indirect substantial shareholding of bank or
FI 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 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, for the purpose
of carrying out specific purpose other than acts which shall need to be done by specific authority
or personnel.
However, the chairman of BOD shall not be allowed to be the 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 bank or FI subject to this Act, MOA & AOA of bank or FI.
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 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 if being heard
shall be provided.
5. NRB shall be notified within 7 days of appointment of CEO and such CEO shall possess 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 or 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
organization operating in the related sector;
However, for ‘D’ class financial institution, CEO shall possess such educational qualification and
operating experience as specified by NRB.
c. Standard benchmark as specified by NRB shall be adhered in relation to 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 bank or FI to appoint a new CEO in case the CEO
appointed u/s 29(1) is 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 bank or FI can act as a CEO, management personnel or employee of another business
institution.
However, in case such bank or FI 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 bank or FI;
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 bank or FI;
d. Implementing or causing to implement the decisions adopted at GM;
e. Operating the bank or FI 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 bank or FI;
g. Operating the bank or FI with an intent to maximizing the benefits to depositors, shareholders
and bank or FI;
h. Implementing the appropriate yardsticks/criteria/standards for management of bank or FI as
per the policy decided by BOD.
2. CEO shall be responsible towards BOD in respect of his functions
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), are prohibited from carrying on banking and
financial transactions as per this Act.
2. NRB shall, for the purpose of providing license to bank or FI, formulate and implement necessary
policy.
32. Use of the Name of Bank or FI
1. No person shall use the name of bank or FI for the purpose of carrying on banking & financial
transaction without obtaining the prior approval of NRB.
2. No individual, company, firm or organization, except the bank or FI and branches of foreign bank
or FI 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 organizations
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 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 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 & Micro-
finance Company respectively.
6. Institution licensed before this Act came into force using the name Micro Finance Development
Bank shall use name as per Sub-section (5).
33. Application to be made for License to Carry on Banking and Financial Transaction
1. Bank or FI desirous to obtain license to carry on banking and financial transaction as per this Act
shall apply to NRB along with prescribed fee.
2. Along with the application as per Sub-section (1) bank or FI shall submit the following details and
documents:-
a. Copy of Certificate of Incorporation as per the prevailing law, MOA & AOA of bank or FI;
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 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 in relation to banking and financial transactions;
g. Business plan of bank or FI 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 bank or FI, and details that such
persons are eligible to be director or executive officials;
i. A promise to maintain the minimum capital as prescribed by NRB while the bank or FI is in
operation;
j. A promise by bank or FI to implement 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 bank or FI to be established in joint investment of foreign bank or FI:-
a. In case of ‘A’, ‘B’, ‘C’, & ‘D’ bank or FI, approval of foreign government, central bank or regulatory
or supervising authority as per the prevailing law of such foreign country of such foreign bank or
FI to carry on banking and financial transactions in Nepal;
b. Details of deviation in any particulars that are required to be adhered 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 application, issue license of any one 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 appropriate to issue the same.
2. NRB shall verify 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 ensures
healthy competition and effectiveness of financial intermediary transactions thus leading to the
benefit of depositors;
b. If it considers that, bank or FI is competent of conducting banking and financial transactions
subject to this Act, rules, regulations & direction framed under this Act, MOA & AOA of such bank
or FI;
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 license.
35. Power to Refuse Issuance of License
1. Notwithstanding anything contained in Section 34, NRB can refuse to issue license to bank or FI
in following conditions:-
a. If issuance of license may have adverse impact on the stability of financial system, healthy
competition & reliability;
b. If it is not appropriate to grant the license in order to protect the interest of depositors;
c. If infrastructure to operate bank or FI 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 bank or FI about the
rejections of application along with reason for the rejection if it deems inappropriate to issue
license.
36. Power of NRB to Impose Conditions
1. While issuing license u/s 34, depending upon the present situation of bank or FI, healthy
operation of financial transaction and the interest of depositors, NRB may impose conditions. It
shall be the duty of concerned bank or FI 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 Bank or FI
NRB, depending upon the minimum paid up capital and transactions to be carried out by bank or
FI applying for license u/s 33 and operational area, shall classify bank or FI 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 higher class of one level, shall apply to
NRB along with prescribed particulars.
However, ‘D’ class institutions cannot be converted into 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 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 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 general public has been offered and allotted;
e. GM has passed an special resolution to get converted into higher class;
f. All other conditions prescribed by NRB has been complied with.
3. NRB may grant license of higher classed bank or FI to the pre-approved bank & FI under this Act,
after necessary amendment has been made in MOA & AOA of such bank or FI 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, status of issued
capital, total loan, 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 bank or FI after obtaining approval of NRB shall be deemed
to be bank or FI 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 in relation to 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 foreign bank.
3. While using the assets to discharge the liabilities of branch of 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 branch of foreign bank shall be as prescribed by NRB.
Chapter-6: Provision relating to Capital, Capital Fund & Liquid Assets

41. Capital to be Maintained

1. The minimum paid up capital of bank or FI shall be as prescribed by NRB from time to time.
2. Bank or FI shall 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 bank
or FI 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 bank or FI shall invest in
any other bank or FI in such a way that the total investment would amount to less than 1% of
paid up capital of such other bank or FI.
5. Limit on investment by any person, firm, company or institution in bank or FI established in joint
investment with foreign bank or FI, ‘D’ class financial institution and IDB shall be as prescribed by
NRB.
6. Provision related to establishment of bank or FI or limit of investment in share capital of a bank
or FI by any person or institution shall be as prescribed by NRB from time to time.
42. Capital Fund
1. Bank or FI shall maintain capital fund in the ratio prescribed by NRB on the basis of total assets
or total risk weighted assets.
2. BOD shall notify NRB within 1 month in case any bank or FI 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 of non-
maintenance of capital fund and the plan or program prepared by bank or FI to increase the
capital fund up to the limit prescribed by the direction of NRB.
4. NRB can direct bank or FI to implement the program or plan as it is if information submitted by
BOD as per Sub-section (2) & (3) is found reasonable and revised program or plan if it needs
revision also specifying the reason thereof.
43. Provision related to Probable Loss
Bank or FI 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. Bank or FI shall maintain 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 afterwards.
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 transaction 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. Bank or FI shall maintain liquid assets as prescribed by NRB from time to time.
47. Dividend Declaration & Distribution
1. Bank or FI shall obtain prior approval from NRB before declaring or distributing dividend.
2. Bank or FI 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 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 bank or FI.
Chapter-7: Provision relating to Carrying Banking & Financial Transaction
49. Bank or FI 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 by means of 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 on the basis of pari
passu collateral as per the agreement;
e. Extending credit against the guarantee of foreign bank or FI;
f. Extending credit up to the value of movable/immovable property already mortgaged with bank
or extending 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 customer of the bank and executing necessary bond, mortgaging
movable/immovable property of 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 bank or FI 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. in order to maintain the capital fund;
l. Issuing, accepting, paying, discounting or purchasing and selling letters of credit, bills of
exchange, promissory notes, cheques, travelers cheques, drafts or other financial instruments;
m. Issuing, accepting, managing of cards and other financial instruments and appointing agent in
order 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 by means of 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 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 on the basis of personal or collective guarantee up to the limit specified by NRB
to deprived sector, family having low income, victims of natural disaster/calamities and for the
economic development of inhabitants in any area of country;
u. Sharing of information of borrowers/customers availing credits or any other facility from the
bank or any other bank or FI, 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 in order to establish, operate and evaluate the project;
x. Properly managing and selling all kinds of assets falling under its ownership as per the 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 Sub-
section (1):-
a. Extending credit against the project, providing or causing to be provided consortium loan
against the collateral on the basis of pari passu as per mutual agreement;
b. Issuing guarantee on behalf of customer of the bank and executing necessary bond, mortgaging
movable/immovable property of 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 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 on the basis of 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 other financial instrument;
f. Dealing in foreign exchange after obtaining prior approval of NRB;
g. Providing Hire Purchase credit or credit on the basis of 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 third person for the same;
j. Selling or leasing the whole or part of its assets;
k. Fixing the price on the basis of agreement between seller and FI, of any items which was
purchased and is 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 bank or FI, 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 micro credit;
d. Providing necessary service and counseling to the groups in respect of mobilization of micro
credit;
e. Taking necessary steps towards timely recovery of micro credits;
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 the it
or any other bank or FI, between NRB, concerned department or any other banks or FIs;
i. Any other activity as prescribed by NRB.

5. “IDB” can carry on 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 company engaged in infrastructure development projects;
c. Opening letter of credit or issuing guarantee for the transaction of purchase, sale, supply or
installations of machinery, tools and equipments 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 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 bank or FI;
h. Any other activity prescribed by NRB.
50. Activities Prohibited to be Carried on by Bank or FI
1. Bank or FI shall not do or cause to be done the following activities:-
a. Purchase and sell of material with an intention of doing business or constructing buildings or
purchase of immovable property for purpose other than the use of bank or FI itself;
b. Extending credit against the security of its own shares;
c. Providing credits or any other facility to, director, 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 in firm, company or institution holding the right to nominate the
director;
d. Extending credits more exceeding the limit of capital fund as prescribed by NRB to single
customer, company, companies of single group or partnership firm, related person;
e. Extending any types of credit to any person, firm, company or institution against the guarantee
of promoter, director or CEO;
f. Investing in securities of “A”, “B” and “C” class bank or FIs as classified by NRB;
g. Investing in share capital of any other institution in excess of 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 competitive environment of financial sector with an
intention 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 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 promoter, director, CEO or person
holding shares more than 1%.
51. Provision related to Subsidiary Company
1. Bank or FI 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 bank or FI shall extend credit or facility to any related person.

53. Notification of Suspicious Transaction
Bank or FI shall, know their customers and notify suspicious transaction 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.
Chapter-8: Provision relating to Supply and Recovery of Credit
55. Provision related to Supply of Credit

1. Bank or FI shall supply credit only after specifying the purpose subject to the direction of NRB
and the Credit Policy Guidelines as decided by BOD.
2. Bank or FI 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. Bank or FI shall send a written request to concerned office 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 bank or FI.
5. Bank or FI 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. Bank or FI shall obtain necessary identification documents, details of interest, if any, of
borrower, guarantor, in case of borrower is firm, company or institution, partners, directors,
shareholders holding shares in excess of limit specified by NRB, person having joint venture or
any interest and family details of all persons specified herewith and their interest, if any.
8. Bank or FI shall clearly specify the amount of borrowing, 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 bank or FI 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 bank or FI shall provide such details to the borrower.
56. Inspection for the Status of Utilization of Credit

Bank or FI shall prepare the inspection schedule and make inspection accordingly to know about
the proper utilization of credit to the purpose for which it was availed from it.
57. Provision related to Recovery of Credit
1. In case, the borrower fails to abide the terms and conditions as specified in the contract or
document executed at the time of borrowing the credit, 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, bank or FI 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 bank or FI has been relinquished by the borrower or the value of security has
declined due any reason whatsoever, bank or FI can ask the additional security within the time
specified by such bank or FI 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, bank or FI can recover its principal and
interest from any other movable or immovable property of the borrower or to which borrower
has title.
4. Any excess amount from the proceeds of auction of security or any other arrangement after the
deduction of principal, interest, fee, recovery expense shall be refunded to the concerned
borrower.
5. Bank or FI shall send a written request to the concerned office 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 written request as per Sub-section (5).
7. Bank or FI can take under its custody/ownership the property which remains unaccepted at the
auction.
8. Bank or FI shall send a written request to the concerned office to register or withhold the
property auctioned in favor of it and the concerned office shall register or withhold the property
in favor of bank or FI 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 auction or by bank or FI itself refuses/obstructs to allow
the possession, to make it available for the possession.
10. Licensed institution cannot stop the recovery process of credits, written off subject to the
prevailing byelaws, by it.
11. Bank or FI shall send a written request to put the name of the borrower in blacklist to CIC, in case
such 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 pursuant to this Section, the licensed institution
concerned may, for the purpose of recovering 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 in accordance with the laws in force.
13. If a credit cannot be recovered even upon taking all actions on recovery of credit pursuant to 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 from 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 from instituting any legal proceeding against the person
who’s been instituted for the recovery of credit by any bank or FI.
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 in true and
fair manner.
2. The books of accounts as per Sub-section (1) shall be maintained in double entry bookkeeping
system and in such a manner so as to reflect the true and fair transactions of the business.
3. Licensed branch of foreign bank or FI 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 bank or FI unless otherwise permitted by NRB.
59. Preparation of Balance Sheet, Profit & Loss A/c
1. Bank or FI 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 public in a manner prescribed by
NRB within such time period. Bank or FI 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 bank or FI shall consolidate the financial statements of subsidiary
company (if any) and show it in 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 bank or FI 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 correction and publishing the information afterwards as per the direction of NRB.
60. Audit Committee
1. BOD of bank or FI shall constitute an Audit Committee comprising of 3 members chaired by non-
executive director.
2. The chairman of the bank or FI, chairman of audit committee and CEO cannot act in the
committee.
3. The members of audit committee pursuant to Sub-section (1) shall not be involved in day-to-day
transactions like accepting 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 audit committee shall held once in each 3 months.
5. The scope and byelaws of audit committee shall be as decided by such.
61. Functions, Duties and Powers of Audit Committee
The functions, duties & powers of 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 bank or
FI and verifying whether such are prepared according to the prevailing laws, directive of NRB;
c. Causing to be conducted the regular management and work completion examination of
management and operation of bank or FI 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 bank or FI
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. Bank or FI shall within 4 months of end of the FY conduct the external audit of balance sheet,
profit & loss A/c and other related annual financial particulars 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. Bank or FI which couldn’t complete the audit as per Sub-section (1) can apply for time extension
to NRB along with reasons and it may extend time period up to maximum of 2 months.
3. The auditor shall submit his/her report to bank or FI audited by him/her and NRB.
63. Appointment and Remuneration of Auditor
1. The appointment of auditor shall be at the GM of bank or FI.
2. An auditor shall not be appointed for more than 3 consecutive terms by GM.
3. Auditor pursuant to Sub-section (1) of “A”, “B” & “C” class bank or FI shall be a Chartered
Accountant and of “D” class FI shall be a Chartered Accountant or Registered Auditor.
4. In case auditor is not or couldn’t be appointed by bank or FI as per Sub-section (1), NRB can
appoint auditor.
5. BOD shall appoint an auditor in case of vacancy at the office of auditor due to any reason.
6. Remuneration of auditor of bank or FI 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 bank or FI and his/her family members;
b. Employee or internal auditor of bank or FI;
c. A person working as a partner to any director, CEO or employee of bank or FI;
d. Debtor of bank or FI, 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 bank or FI;
g. Person convicted of criminal offence involving moral turpitude and 5 years has not been 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 bank or FI, 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 bank or FI at any time.
2. Upon required by auditor as per Sub-section (1), the person responsible shall provide true
particulars or explanation 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 business of bank or FI;
d. Informing NRB in case there is the probability of following situations:-
1. Violation of, terms and conditions specified at the time of granting license, this Act, rules,
regulation, bye-laws and direction under this Act;
2. Adverse effect on the day-to-day functions of bank or FI;
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 voucher
at any time during the audit of bank or FI and auditor can ask for information and explanation to
the employees of bank or FI as required by him/her on the course of fulfilling his duty in proper
manner.
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
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
transaction has been carried out or any damage has been caused to the bank or FI;
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 bank or FI has been carried out in a sufficient manner;
g. Matters that needs to be communicated to the shareholders;
h. Any other matters that needs 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 bank or FI 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 bank or FI or its subsidiary company;
c. To examine any particular area as specified or recommended to bank or FI 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 bank or FI.
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.
Chapter-10: Provision relating to Merger & Acquisition
69. Bank or FI can be Merged or Acquired

1. One bank or FI can be merged or get merged with another one or can acquire another one or can
be acquired by another one subject to the procedures laid down in this Act or NRB Act.
2. “D” class FI can be merged or get merged or acquired with/by another FI of same class.
Provided that, IDB shall not be merged or get merged or acquired or get acquired with bank or
FI.
3. Notwithstanding anything contained in this Chapter, if bank or FI is found to be in the following
conditions as per the report of supervision, NRB, specifying the reason thereof, can issue order
to merge or be merged the assets, liabilities and business of such concerned bank or FI with/by
another bank or FI:-
a. Inadequate capital fund or the financial condition is being deteriorated in the last 3 years;
b. Acts done, against the interest of depositors or which have adverse effect on the liability
towards the depositors, or such situation still exists;
c. Where it is necessary, in order to enhance the national and international competitiveness for
the financial stability, development and promotion.
4. Notwithstanding anything contained in this Chapter, if bank or FI is found to be in the following
conditions as per the report of supervision, NRB, specifying the reason thereof, can issue order
to merge or be merged the assets, liabilities and business of such concerned bank or FI with/by
another bank or FI:-
a. More than one banks or FIs of persons of the same group, firm or company are in operation
causing unhealthy financial relation;
b. Bank or FI if operated in the existing situation, the interest of depositors, public shareholders
and other customers cannot be protected;
c. Licensed institutions are not able to pay off their liabilities due to continuous increase in
systematic risk;
d. Shares of public group are not issued within specified time, issued shares are not subscribed or
minimum proportionate issued capital as specified has not been met;
e. Immediate reformative action has been taken against the bank or FI for 3 or more times or the
governance of the licensed institution has weaken due to continuous conflict in the BOD.
5. While issuing order under Sub-section (3) & (4), NRB may specify the procedures for merger &
acquisition.
70. Application to be made for Merger & Acquisition
1. If any licensed institution wishes to be merged with or merging another licensed institution, both
the merging and merged licensed institutions shall adopt a special resolution to that effect in
their respective board meetings and make a joint application, setting out the following matters,
to NRB for pre-approval:-
a. Necessity and justification of merger of banks or FIs, general prospection of effects that would
yield in banking or financial sectors and financial system;
b. Audit report containing the audited balance sheet, P&L A/c, cash flow statement, net worth
statement of previous FY of merging & merged banks or FIs;
c. Provision of safekeeping of interest of creditors of both merging & merged licensed institutions;
d. Valuation of the movable and immovable properties of, and actual details of the assets and
liabilities of, the merging licensed institution;
e. Report on management of employees of both merging and merged licensed institutions;
f. Copy of approval for merger as per the prevailing company & securities law;
g. Preliminary agreement between merging and merged licensed institutions about the merger;
h. Any other particulars prescribed by NRB.
2. In case any bank or FI is desirous of acquiring another bank or FI, concerned 2 or more banks or
FIs shall adopt a special resolution to that effect in their respective board meetings and make a
joint application, setting out the following matters, to NRB for pre-approval:-
a. Necessity and justification of acquisition of banks or FIs, general prospection of effects that
would yield in banking or financial sectors and financial system;
b. Audit report containing the audited balance sheet, P&L A/c, cash flow statement, net worth
statement of previous FY of acquiring institution and target institution(s);
c. Report on management of employees of both acquiring and target licensed institutions;
d. Copy of approval for acquisition as per the prevailing company & securities law;
e. Preliminary agreement between acquiring and target licensed institution(s) about the
acquisition;
f. Any other particulars prescribed by NRB.
3. NRB shall examine and verify the application received pursuant to Sub-section (1) & (2) and NRB
can discuss the matters with applicant and ask for additional documents also as per the necessity.
4. If NRB is satisfied, upon the examination and verification as per Sub-section (3), that the merger
or acquisition would not result in any negative impact on the development of banking and
financial system of the country, healthy competition and on complying of prevailing laws, it may
grant pre-approval and while issuing such pre-approval NRB may prescribe terms, conditions &
directions.
71. Provision related to the Valuation of Assets & Liabilities
1. After obtaining pre-approval from NRB for merger & acquisition of banks & FIs pursuant to
Section 70, concerned banks & FIs shall appoint valuator, who’s among the person, firm,
company or institution eligible to be appointed as an auditor of the banks or FIs, for the purpose
of valuating the assets, liabilities and business of banks or FIs and notify the NRB about the same.
However, banks or FIs can conduct the valuation even before applying for pre-approval from
NRB.
2. After obtaining pre-approval from NRB for merger and acquisition u/s 70, banks or FIs shall
conduct the valuation of the assets, liabilities & business by the auditor appointed by GM or BOD
if delegated by GM.
3. Acquirer institution can conduct the detailed valuation of assets and liabilities of target
institution.
4. NRB can order banks or FIs to appoint another valuator, in case the work done by valuator
appointed pursuant to Sub-section (1) & (2) is found to be unreliable.
5. Remuneration and other benefits of the valuator shall be as decided by the banks or FIs
concerned.
6. Valuator shall conduct the valuation of assets, liabilities, net worth and business as per the
established valuation standards, basis, procedure and policy.
7. NRB can give necessary direction in relation to the procedure of valuation, basis of valuation and
scope of valuation.
72. Provision related to Agreement
Except otherwise ordered by NRB, banks or FIs who’ve obtained pre-approval for merger and
acquisition shall enter into an agreement for merger & acquisition specifying the following
matters:-
a. Provision related to the safeguarding of interest of depositors, creditors & shareholders;
b. Provision related to the method of valuation of assets and liabilities of banks or FIs and
adjustment thereon;
c. Management of investment and transaction, interbank transaction and cross holding, details of
guarantee, management of Non-Banking Assets (NBA), management of assets and liabilities;
d. Details of process, time and cost to be incurred in merger or acquisitions;
e. Management and organizational structure and list of name of directors;
f. Provision related to the management of employees, in respect of designation, remuneration
and other benefits, of merging banks & FIs or acquirer and target banks or FIs;
g. Details of shareholders having substantial holding and other shareholders;
h. In case a new bank or FI is to be formed after merger, name, MOA, AOA, capital structure,
restructure and class of such new institution;
i. In case of foreign bank or FI, copy of approval from regulatory authority of such foreign bank or
FI;
j. In case of foreign bank or FI, details of business of bank or FI situated in Nepal that is going to
be acquired or whole of the business of such bank or FI to be sold;
k. Grievance management system of grievance of concerned;
l. Process that is going to be initiated to comply with the prevailing law;
m. Any other necessary matters specified by NRB.

73. Provision related to Approval
1. Banks or FIs who’s obtained pre-approval from NRB shall, at the respective GM, pass a special
resolution for the same and apply jointly along with the agreement u/s 72 to NRB for final
approval.
2. Upon examination and verification of the application received pursuant to Sub-section (1), if NRB
deems necessary to call for additional information or document, NRB can call for such additional
information & document.
3. Upon the examination and verification as per Sub-section (1) & (2), NRB can give the final
approval for the merger or acquisition of banks or FIs prescribing any terms or conditions
thereon, after ensuring healthy competitive environment in financial sector due to merger or
acquisition, creation of monopoly or controlled practice in banking or financial sector or not and
overall banking & financial structure, overall adverse impact on financial market and depositors
and fit & proper test of promoter having substantial holding in institution after merger or
acquisition.
4. NRB shall, within 45 days, inform the concerned banks or FIs about non-suitability of merger or
acquisition specifying the reason thereof.
5. NRB can waive as specified, to the approved institutions under Sub-section (3), the directions as
per this Act or given by NRB, if the compliance of such is difficult due to merger or acquisition, as
per the necessity and justification.
6. Other provisions related to merger or acquisition shall be as specified by NRB.
74. Acquisition of Transaction
Subject to the pre-approval of NRB, any branch or any assets or business of bank or FI can be
transferred to or from any other bank or FI upon mutual agreement.
Chapter-11: Provision relating to Voluntary Cancellation of Bank or FI
75. Voluntary Cancellation of Bank or FI

1. Bank or FI desirous of voluntary cancellation shall apply to NRB along with the detailed action
plan of voluntary cancellation.
2. NRB can grant pre-approval for voluntary cancellation, if it is satisfied, upon the verification of
application under Sub-section (1), that the bank or FI or branch or office of foreign bank or FI is
able to meet its debt obligation & liabilities in full, subject to terms and conditions.
3. Banks or FIs obtaining pre-approval under Sub-section (2) shall do the following acts:-
a. Registering information of pre-approval with company registrar within 7 days of pre-approval;
b. Conveying the information of pre-approval to all the depositors, creditors and concerned
persons via fast and reliable medium possible within 30 days of pre-approval;
c. Publishing the information of pre-approval within 30 days of pre-approval in national daily;
d. Any other acts specified by NRB.
76. Initiation of Voluntary Cancellation
1. Voluntary cancellation of bank or FI shall be deemed to be started from the date of final approval
from NRB.
2. Bank or FI obtaining pre-approval from NRB u/s 75 shall complete following acts before applying
for final approval:-
a. All deposits and liabilities shall have to be repaid or settled within the prescribed time period;
b. Business transaction shall be ceased to carried on and no new transactions is to be entered;
c. No other powers, except necessary for voluntary cancellation, shall be exercised.
3. NRB can issue necessary direction while performing acts under Sub-section (2).
4. In case the payee doesn’t come forward to receive the payment under Sub-section (2)(a) within
time prescribed, such unpaid amount shall be kept on a separate account as per the direction of
NRB.
5. There shall be no adverse effect on the interest of any depositors or creditors of bank or FI due
to pre-approval for voluntary cancellation of such bank or FI.
6. After the end of the procedure for voluntary cancellation of bank or FI as per this Act, an Audit
Report on such shall be submitted to NRB by concerned bank or FI;
7. NRB shall grant final approval to bank or FI complying with this Section. NRB shall cancel the
license issued for carrying on banking and financial transaction.
8. The amount of deposit immediately unclaimed shall be kept separately as per the direction of
NRB by the bank or FI which’s undergone voluntary cancellation.
77. No effect on Liability
There shall be no effect on the liability of, at the event of voluntary cancellation of bank or FI
under this Chapter, concerned bank or FI, its shareholders, directors, CEO, Executives, employees
or any other person under this Act or any other prevailing law.
Chapter-12: Provision relating to Compulsory Cancellation of Bank or FI
78. Application can be made to the Court for Compulsory Cancellation of Bank or FI
1. NRB under this Chapter can apply to the court in order to initiate the compulsory cancellation of
any bank or FI and notice of such application shall be published in national daily.
2. Along with the application for compulsory cancellation of bank or FI under Sub-section (1), NRB
shall attach the following documents:-
a. Details of Situations for compulsory cancellation of bank or FI u/s 79 along with reason thereof;
and
b. Financial statement of bank or FI concerned.
3. Notwithstanding anything contained in Sub-section (1), any of the following persons can, after
obtaining prior approval from NRB, apply to the court for compulsory cancellation of bank or FI
on the basis of situation mentioned in Section 79:-
a. Person, not receiving the payment of matured deposit, representing 25% or more deposit or
joint application by 1% or more depositors; or
b. Person eligible to apply for compulsory cancellation under prevailing Insolvency law.
4. The procedure of compulsory cancellation shall be started from the date of order of court for
compulsory cancellation on the basis of application under Sub-section (1) or (3).
79. Situation for Compulsory Cancellation of Bank or FI
In the following situations bank or FI can be compulsorily cancelled:-
a. On the failure of payment of matured or call deposit or financial liability within predetermined
time period;
b. Negative Capital fund of bank or FI;
c. NRB has recommended for compulsory cancellation of bank or FI based on the Supervision
Report of such bank or FI;
d. Any acts, found to be conducted against the interest of depositors and, of obstruction on the
development of financial system by the shareholder or executive having substantial interest;
e. Repetitive non-compliance with this act or any direction given by NRB;
f. Any other bases for compulsory cancellation of bank or FY as per NRB are present.
80. Suspension of Transaction
1. NRB shall give an order for suspension of all financial transaction of bank or FI after applying to
the court for compulsory cancellation of such bank or FI u/s 78.
2. While giving an order for suspension under Sub-section (1), NRB can cancel the license.
81. Appointment of Liquidator
1. Court, in order to initiate the compulsory cancellation of bank or FI, can order NRB to recommend
for the appointment of liquidator.
2. If court gives order under Sub-section (1), NRB shall, within 15 days, recommend the name of at
least 3 persons for the appointment of liquidators.
3. NRB, while recommending the liquidator under Sub-section (2), shall recommend the persons
having experience in banking or financial sector among the person holding license to carry on
insolvency proceeding.
4. Court can appoint one person among the 3 persons recommended under Sub-section (2).
5. After the appointment of liquidator under Sub-section (4), the BOD of such bank or FI shall
deemed to be automatically dissolved and unless otherwise ordered by liquidator the service of
employees of such bank or FI shall come to an end.
6. NRB shall apply to the court for the removal of liquidator and appointment of another liquidator
in case the liquidator appointed under Sub-section (4) resigns, dies or NRB is satisfied that
liquidator is unable to discharge his duty.
82. Function, Duty & Power of Liquidator
1. Liquidator, after being appointed for initiation of proceedings for compulsory cancellation of
bank or FI, shall discharge following functions:-
a. Publishing notice, for the information of shareholders and stakeholders of bank or FI, in English
& Nepali national daily within 15 days of appointment;
b. Sending the information accompanying with the certified copy of order for compulsory
cancellation to the office of company registrar and institution formed under prevailing law in
order to secure the deposit within 15 days of appointment;
c. Attaching or causing to be attached the notice of such order at the principal place of business
of bank or FI and at every offices of such bank or FI for the information of public;
d. Broadcasting the information via at least one national TV and one national Radio at least once
a week for a continuous period of 4 weeks after the appointment;
e. Other functions as prescribed by NRB.

2. After receiving information under Sub-section (1)(b), office of company registrar shall enter in
the record book of such bank or FI regarding the initiation of compulsory cancellation.
3. Liquidator, being under the direction of NRB, shall have following functions, duties and powers
in addition to functions, duties and powers mentioned anywhere in this Act:-
a. Assuming responsibility of office of bank or FI, books of accounts, accounts, records & assets;
b. Performing necessary regular functions for the management and operation of bank or FI;
c. Performing or causing to be performed all the functions in the name or on behalf of the bank or
FI;
d. Appointment of employees to assist in discharging his/her duty;
e. Making necessary expense for the operation, management & cancellation of bank or FI;
f. Coordinating, to secure the deposit, with the institution established under prevailing law;
g. Using all the powers vested upon with the shareholders, general meeting, BOD & officers of the
bank or FI;
h. Examination of business and financial situation of bank or FI;
i. Complete or partial merger or transfer of assets and liabilities of bank or FI to another bank or
FI after obtaining approval from NRB;
j. Obtaining credit against the security of assets of bank or FI;
k. In case there seems to be a situation of profit on sale of assets or end of liability or agreement,
selling such assets or ending such liability or agreement;
l. Availing the service of qualified person as per necessity for assisting in discharging his/her
functions;
m. Conducting discussion and reaching in an understanding with the creditors or borrowers of bank
or FI;
n. Collecting, insuring, selling and distributing as per this Act the assets of bank or FI;
o. Verifying whether or not any director, officer, employees or any person has committed forgery,
fraud or misleading act against bank or FI or depositors or creditors and initiating necessary legal
actions against such person or instituting or defending any legal action on behalf of bank or FI;
p. Repossessing the assets of bank or FI in case it has been used by any person or initiating legal
action for repossession of such assets or taking back the money involved in any void transaction;
q. Submitting the report, prepared on progress of cancellation as per the format as prescribed by
NRB, to the court and NRB;
r. Doing or causing to be done all necessary acts for the cancellation of bank or FI;
s. Doing any other acts as prescribed by NRB.
4. Liquidator can apply to the court for releasing the obstruction, in case any obstruction has arisen
while using the powers and discharging the functions as per this Chapter;
5. Court can give appropriate order in case reason in application under Sub-section (4) seems
appropriate.
83. Effect of Order of Cancellation
1. Upon the issuance of order of cancellation of bank or FI by court, there shall be following effects
on following matters:-
a. Automatic extension of limitation period, in case time period of any right or claim of bank or FI
has been expired as per prevailing law, up to 6 months from the date of order of initiation of
cancellation of such bank or FI;
b. Except in the situation mentioned in Clause (c), assets or properties of bank or FI mortgaged by
any means or bank or FI has availed credit against the security of such shall automatically be
released;
c. Function of accepting deposit and extending credit of bank or FI shall automatically be ceased;
d. Any legal proceedings pending against bank or FI shall automatically be suspended and except
court has ordered otherwise, no legal action against such bank or FI can be revived;
Provided NRB shall have to apply to the Supreme Court in case of any case against such bank or
FI is pending before it or it is necessary to obtain clearance from the Supreme Court.
e. No interest or extra fee shall be levied on the liability of bank or FI;
f. Shares of such bank or FI shall not be transferred, pledged, or cancelled;
However, shares of such bank or FI can be transferred, pledged or cancelled after obtaining prior
approval of NRB.
2. Liquidator shall apply to the court the matter and notify NRB, about any acts against the interest
of the depositors and creditors of the bank or FI, which comes to the knowledge of the liquidator,
done up to 6 months prior to the order of the court for compulsory cancellation.
3. The court can invalidate or declare void such acts, if any of the following acts has been seen to
be done in the application under Sub-section (2):-
a. Decision about giving gift;
b. In case of acts against the interest of depositors and creditors;
c. Borrowing has been repaid or transferred before the due date or collateral has been released
or transferred or mutated before the due date of payment;
d. During any course of action, any agreement was found to have been entered into in way
resulting in extra liability, than as per the common practice, for bank or FI;
e. Any agreement or transaction was found to have been entered in different terms than regular
banking and financial transactions allowed under this Act;
f. Any agreement entered in a way of providing employment to the related persons.
4. Following transactions shall be void in case any bank or FI has been compulsorily cancelled:-
a. Preferential transactions entered into up until 6 months prior or after the date of initiation of
compulsory cancellation;
b. Preferential transactions entered into with the related person up until 1 year prior or after the
date of compulsory cancellation;
c. Transaction, entered into against inadequate consideration, as a result of which bank or FI was
ordered for compulsory cancellation or any other transaction entered into against inadequate
consideration after the initiation of compulsory cancellation;
d. Forged transactions entered into up until 2 years prior or after the initiation of compulsory
cancellation;
5. Liquidator shall apply to the court in order to declare void the transactions mentioned in Sub-
section (4).
6. Court can issue following orders in case it is satisfied that any transaction is going to be declared
void:-
a. Issuing order to repay the whole or some of the amount, paid by bank or FI to concerned person
in relation to such transaction, to the liquidator;
b. Issuing order, to return the assets or amount equal to such assets in relation to such transaction
to the liquidator, to concerned person;
c. Issuing order to full or partial waiver or release of the credit availed by bank or FI from such
transaction or security or guarantee provided by bank or FI against such credit;
d. Issuing order that, exemption or transfer or void or ineffective or idle agreement as a result of
voidable transaction between bank or FI and another person, cannot be enforced ;
e. Court can issue any other order necessary in order to implement the order under this Sub-
section.
7. Director, officer, employee or any other person shall be held personally liable for any loss or
damage caused to the bank or FI due to any acts/transactions under Sub-section (3) & (4) entered
into by them.
84. Particulars of Assets & Liabilities
1. Liquidator shall prepare expeditious particulars of assets, liabilities and probable liabilities of
bank or FI under compulsory cancellation, and submit a copy of such to NRB and keep one copy
at bank or FI concerned;
2. Following matters shall be included in particulars prepared under Sub-section (1):-
a. Liability towards the depositors & creditors of bank or FI;
b. Details of all the assets and liabilities of bank or FI and estimated value of the same;
c. Agreement executed by bank or FI to receive service;
d. Material transaction executed by bank or FI up to 6 months prior to the order of compulsory
cancellation.
3. Particulars under Sub-section (1) shall be updated quarterly by liquidator and make it available
to the creditors if requested by them;
85. Transaction to be Ended
1. Within 6 months from the order of compulsory cancellation of bank or FI, liquidator can end the
following transactions of such bank or FI:-
a. Any agreement of employment executed by bank or FI;
b. Any agreement for service executed on which concerned bank or FI is a party;
c. All the acts and agreements that were being carried on by bank or FI in the capacity of trustee;
d. As per the necessity and situation any regular transactions of bank or FI or any branch office of
such bank or FI;
e. Any liability to be discharged by bank or FI without any limit;
f. Any other transactions prescribed by NRB.
2. No additional claim of amount or any damage against any transaction ended, exceeding the
amount to be paid by bank or FI up to the date of ending of such transaction under Sub-section
(1) can be made.
86. Notice of Submitting the Claim
Liquidator shall publish the notice as follows within the time prescribed by NRB to submit
particulars mentioning the mode of receiving payment as per claim made or amount receivable
by the person having any claim over the bank or FI under compulsory liquidation within 1 months
from the date of publication or transmission of such notice:-
a. Publishing notice in any English and Nepali national daily;
b. Attaching the notice at the main office and at every office of bank or FI for public information.
87. Liquidator can Accept or Reject the Claim
1. Liquidator shall, notify the claimant whether or not the claim has been accepted fully or partially
after verifying the claim received u/s 86 on the basis of available evidence and publish the public
information in respect of the same within 90 days of receipt of claim u/s 86.
2. Claimant whose claim has either been accepted partially or rejected shall submit their claim along
with additional evidence within 15 days of receipt of information under Sub-section (1) about the
acceptance or non-acceptance of claim ;
3. Liquidator can make full or partial revision on claims received under Sub-section (2), if necessary.
4. Claimant who’s not satisfied about the decision of liquidator under Sub-section (1) & (3) can
appeal to the court within 21 days from the date of receipt of information about such.
88. Classification of Claim
1. Liquidator shall classify, accepted, partially accepted or rejected claim u/s 87, as per the same
head.
2. Part of accepted claim of partially accepted claim shall be classified as accepted and remaining
as rejected under Sub-section (1).
3. While preparing the list of claim, name & address of the claimant, place, date & amount of
repayment to be made and particulars of security against such claim, shall be clearly stated.
4. Any claim which is under protest shall be separately shown under protested claim until final
decision has been made on the same.
5. Claim, which and the value of which, is uncertain shall be classified as per classification specified
by the liquidator himself/herself.
6. Claim of secured creditors shall be classified separately.
7. Accepted claims shall be listed based on the priority of payment under this Act.
89. Meeting of Creditors
1. A committee of creditors can be formed for the purpose of mutual discussion and understanding
between creditors by the creditors of bank or FI under compulsory cancellation.
2. Liquidator of bank or FI under compulsory liquidation can assent with the creditors of such bank
or FI after necessary discussion subject to the terms and directions specified by NRB.
90. Cancellation Plan
1. Liquidator shall, within 30 days of classification of claim u/s 88, prepare a detailed plan for
cancellation of bank or FI and submit it to the court for approval along with notifying about it to
NRB.
2. Following matters shall be included in the plan to be submitted under Sub-section (1):-
a. Detailed particulars, nature and result of the assets and liabilities of the bank or FI;
b. Past and projected income statement of the bank or FI;
c. Detailed statement in respect of whether or not the present economic transactions of bank or
FI is to be continued or cancelled;
d. Decision or order from the court;
e. Particulars of actions taken in order to claim the damage caused by any offence or illegal acts
done by the promoter, officer or employee of the bank or FI;
f. Detailed particulars of the classification and priority of payment of claim;
g. Plan of sale of major assets or group of assets or liquidity of bank or FI;
h. Liability and repayment schedule of payment likely to be made to the depositors and creditors
of the bank or FI within coming 90 days;
i. Cost & expense of compulsory cancellation;
j. Any other particulars as prescribed by NRB.

3. Liquidator shall update quarterly the cancellation plan under Sub-section (1).
4. The cancellation plan shall be made available for inspection by the creditors of bank or FI
mentioned in such plan.
5. Notwithstanding anything contained in this Act, bank or FI shall not be re-capitalized by investing
partially or fully after the initiation of compulsory cancellation.
91. Immediate Advance to the Depositors
1. Notwithstanding anything contained under this Chapter, liquidator can distribute up to Rs.
1,00,000/- per account as an advance to the depositors of bank or FI under compulsory
cancellation in a condition that such shall be adjusted at the time of distribution of deposit.
2. Advance given under Sub-section (1) shall be adjusted at the time of making payment u/s 94.
92. Right to Sale the Assets
Liquidator, being under the direction given by NRB, can sale the assets provided as the security
to the creditors whose claim were accepted and any other assets as following:-
a. Easily marketable securities, foreign currencies or other immediately marketable assets at the
place of transaction;
b. Easily marketable securities, foreign currencies or other assets provided as security to the
creditors can be sold by the creditors themselves;
c. In case liquidator is convinced that the right value would not be received at auction sale, it can
be sold in any way;
d. Any other provision as per specified by NRB.
93. Settlement of Claim
Liquidator shall publish and transmit a public notice disclosing the nature, amount & priority of
payment of claim to settle the claim as per cancellation plan u/s 90.
94. Priority Payment
1. Bank or FI under compulsory cancellation shall make the payment as per the following priority
respectively:-
a. Expenses incurred for compulsory cancellation;
b. Amount up to deposit secured by deposit insurance as per the prevailing law not exceeding the
accepted claim of depositors or if such deposit amount has been paid to deposit insurer
established as per the prevailing law, amount equal to such payment;
c. Deposit remaining to be paid after making payment as per Clause (b);
d. Amount of salary or any other liability to be paid to the employees of the bank or FI;
e. Amount to be paid to GON, local authority or NRB;
f. Amount of fee or as against the valuation to be paid to other bank or FI;
g. Amount to be paid to other creditors or as per other claim;
h. Shareholders as per the prevailing law.
2. Notwithstanding anything contained in this Chapter, creditor if willing to accept against the
amount receivable by him/her/it and gives an application for the same, any assets which remain
unsold after making sale as per Section 92, liquidator being under the valuation guidelines
prescribed by NRB can transfer such assets to such creditor.
3. Notwithstanding anything contained in this Chapter, any assets provided as a security to the
secured creditors shall only be used to pay the liability towards them.
95. Amount or Assets remaining Unpaid
In case the concerned person doesn’t show up to receive the payment of amount or assets within
time prescribed in the notice given for receiving the payment of amount or assets under this
Chapter, such amount or assets shall be kept under the custody of liquidator as per the direction
of NRB until such person shows up to receive the same.
96. Decision of Cancellation
1. Liquidator shall apply to the court for the cancellation of bank or FI along with the particulars of
procedure carried on after the completion of cancellation process of bank or FI which has gone
under compulsory cancellation under this Chapter and whose license has been cancelled by NRB.
2. After necessary examination and verification of application submitted by liquidator under Sub-
section (1), the court can pass a decision that such bank or FI has gone under compulsory
cancellation.
3. Liquidator shall publish the decision of court under Sub-section (2) at least once in a Nepali and
English national daily and while publishing such, order of court and the major matters of report
of cancellation shall also be included.
4. Liquidator shall request company registrar to remove the name of such bank or FI from the list
of company registered after the publication of notice under Sub-section (3) and as per the above
request company registrar shall publish in Official Gazette of Nepal the notice that the name of
such bank or FI has been removed from the register of company.
5. After publication of notice of removal of the name of bank or FI in the Official Gazette of Nepal,
the process of compulsory cancellation of such bank or FI shall come to an end and such bank or
FI is deemed to be dissolved duly.
6. Any liability, under this Act or any other prevailing law due to compulsory cancellation, of any
director, CEO, officer, employee, shareholders or any other person shall remains to be continued.
97. Compulsory Cancellation of Bank or FI operating in More than One Country
1. Compulsory cancellation procedure of branch of bank or FI operating in more than one country
shall be as decided by NRB considering the international practice.
Provided that the compulsory cancellation of bank or FI acting as a subsidiary company of bank
or FI which is operating in more than one country shall be under this Chapter.
98. No Claim
No claim shall be submitted by the creditor who has not submitted the claim within time
prescribed in the notice under Section 86 after the end of time prescribed in such notice.
Provided there shall no effect on the right of depositor due to non-submission of claim of amount
in the deposit account of such depositor.
Chapter-13: Provision relating to Offence, Prosecution & Penalty
99. Regulatory Action

1. Depending upon the nature and seriousness of the breach committed, by bank or FI, of this Act,
NRB Act, rules, regulations, direction or order issued under the same, NRB can take one or more
of the following action:-
a. Giving written warning or notifying about the same;
b. Making the promise by BOD for steps of improvement;
c. Issuing written order, not to breach this Act, NRB Act, rules, direction or order issued under the
same or to take necessary steps for improvement;
d. Imposing restriction on distribution of dividend to the shareholders of bank or FI or issue of
bonus shares or acts of distributing dividend or issuing bonus share by bank or FI;
e. Specifying limitation or imposing restriction on acceptance of deposit or extension of credit by
bank or FI;
f. Imposing partial or whole restriction on the transaction of bank or FI.
2. NRB can suspend or cancel the license issued to bank or FI for carrying on banking and financial
transaction in the following circumstances:-
a. If banking and financial transaction has not been started within 6 months from the date of
obtaining license for carrying on banking and financial transaction;
b. If banking and financial transaction is ceased to be carried on without obtaining the approval
from NRB;
c. If banking and financial transaction has been carried on against the interest of depositors or
matured or called deposit is not refunded or cannot be refunded;
d. If NRB Act, this Act, rules, regulations, direction, order made under such Acts or terms and
conditions prescribed by NRB are not followed or breached;
e. If the license of bank or FI is found to be obtained by submitting false particulars;
f. Deposit is not insured as per the prevailing law.
3. Depending upon the nature and seriousness of the breach committed, by the promoter,
shareholder, director, CEO, officer, employee or any concerned person of any bank or FI of this
Act, NRB Act, rule, regulation, direction or order issued under the same, NRB can take one or
more of the following action:-
a. Forfeiting or freezing the shares in bank or FI of such person and giving direction to the BOD to
sale such shares to any other person;
b. Giving direction to BOD to freeze or suspend the sitting fee, monthly remuneration or all the
benefits entitled to be received by BOD, director, officer and any other employee of bank or FI;
c. Removing chairman, director, CEO or any person or employee acting in the capacity of chief
executive from such post by giving a written notice to such person if such person is found not to
be acted in the interest of depositors, shareholders or the licensed institution during the
inspection and supervision of NRB;
However a time period of 3 to 15 days shall be provided to such person to submit his/her
justification of the accusation. Such person shall not be entitled to receive any compensation or
benefit mentioned in Employee Byelaw and shall be disqualified to hold the office for service in
any bank or FI licensed by NRB for a period of 5 years.
d. If during the actions under Clause (d), director, officer or any other employee refuses to receive
the letter of action or justification after receiving such letter justification is not submitted, NRB
can give the information about such action through public notice;
e. If any bank or FI is found to have accepted or provided salary or any other benefit against this
Act or of an unreasonable amount, such benefit or amount equivalent to such benefit and
interest applicable as per the prevailing law shall be recovered from such person providing such
benefit;
f. Giving order to bank or FI for sending out the written recommendation, for action against
director, officer or employee of bank or FI, to the institution where such person is engaged
professionally;
4. NRB can give order to recover from such director, officer or employee any amount that has to be
paid by bank or FI due to the negligence or malafide intention of any director, officer or
employee;
5. Such director, officer or employee shall have to pay the amount personally within 35 days of
receipt information regarding the order under Sub-section (4);
6. In case of default in payment by such director, officer or employee under Sub-section (5), it shall
be recovered as government dues from any bank account in any bank or FI of such person or
family members of such person or from any movable or immovable assets of such person or
his/her family members;
7. Such bank or FI shall have to bear the expense of publishing or transmitting information by NRB
after regularization, inspection, supervision or any other action of bank or FI.
100. Penalty can be Imposed
1. NRB can charge penalty as follows to the bank or FI not providing the information or not
submitting documents or particulars that needs to be submitted within prescribed time or any
documents, statistics or records asked by NRB or officer deputed by NRB during the monitoring,
inspection or supervision are not made available within prescribed time under this Act or NRB
Act or rules, regulations, directions or orders issued under such Acts:-
a. Rs. 1,00,000/- per day up to 2 weeks from the due date;
b. Rs. 1,25,000/- per day up to 1 months from the due date;
c. Rs. 1,50,000/- per day after the expiry of period under Clause (b).
2. NRB depending upon the nature and seriousness of breach can impose penalty up to Rs.
10,00,000/- on breach of this Act or NRB Act or rules, regulations, directions, orders or conditions
under such Acts by promoter, shareholder, director, CEO, officer, employee or any other
concerned person of bank or FI or non compliance to the direction given u/s 99(3)(b) .
3. If the penalty imposed under Sub-section (1) is not submitted by bank or FI to NRB within 30 days
of receipt of information of such decision, such shall be recovered from the account opened with
NRB by such bank or FI.
4. The amount of penalty to be received under Sub-section (1) & (2) shall be admitted in the
government fund.
101. Procedure for taking Action
1. Except otherwise mentioned in this Act, while taking action u/s 99 and imposing penalty u/s 100
NRB shall follow the following procedure:-
a. Before taking proposed action or imposing penalty, a written notice, describing the nature of
offence, summary of such offence and proposed action that can be taken or amount of penalty
that can be imposed to accused bank or FI or person, of 7 days shall be given to submit
its/him/her justification;
b. Concerned bank or FI or person shall submit justification in writing within 7 days from the
receipt of written notice under Clause (a);
c. If the written justification received under Clause (b) is found to be decent NRB can modify, limit
or cancel such accusation;
d. If the written justification received under Clause (b) if not found to be satisfactory NRB can take
action u/s 99 or impose penalty u/s 100 to such bank or FI or person.
2. Other procedure that is required to be adhered by NRB while taking action or imposing penalty
under this Act shall be as prescribed by NRB.
102. Control Over Licensed Institution
1. Notwithstanding anything contained in this Act, any licensed institution is found to have
breached this Act, NRB Act, rules or regulations formed under such Acts, or direction or order
issued under such Acts, or NRB is satisfied based on the report of inspection and supervision that
licensed institution is unable to discharge its liability or there exists a probability of inability
discharge liability or bank or FI is not operating smoothly or act has been carried out against the
interest of shareholders or depositors, NRB can take over such licensed institution by suspending
its BOD for maximum of 3 years.
2. After taking under its control any licensed institution by NRB under Sub-section (1), management
of such licensed institution can be carried on by NRB itself or any suitable person, firm, company
or institution can be appointed.
3. Within 1 year from managing the licensed institution under Sub-section (2) by NRB itself or by
any person, firm, company or institution appointed by NRB, financial and management audit of
such concerned institution shall be conducted or cause to be conducted and such report shall be
published publically.
4. If, based on the audit report under Sub-section (3), NRB is convinced that such licensed institution
is capable of discharging its liability or capable of operating smoothly, NRB can do as follows:-
a. Vesting the responsibility of management of such licensed institution again to suspended BOD
by releasing the suspension of BOD under Sub-section (1); or
b. Removing the BOD suspended under Sub-section (1) and forming a new BOD among the
shareholders of such licensed institution and vesting the responsibility of management of such
institution on newly formed BOD; or
c. Vesting the responsibility of management of licensed institution to a newly formed BOD by
calling the GM of such institution; or
d. Any taking any other seemed appropriate by NRB.
5. NRB can take any of the following 2 actions if NRB is convinced, based on the report under Sub-
section (3), that the concerned institution is unable to discharge its liability or is unable to operate
smoothly;-
a. Initiating the process of compulsory cancellation as per the provision of Chapter 12; or
b. Initiating the process of resolution as per the provision of NRB Act, 2058.
6. Depending upon the situation NRB shall provide time period of up to 15 days to submit the
written justification to concerned licensed institution before taking into its control the licensed
institution under Sub-section (1).
7. All the expenses of actions taken after taking into control the licensed institution under its control
by NRB shall be borne by such institution.
8. NRB shall notify GON & Ministry of Finance after taking into its control any licensed institution
under Sub-section (1).
103. Offence
1. Any of the following acts done by any person against this Act, rules, regulation, direction, order,
terms or conditions issued under this Act shall be deemed to be an offence:-
a. Carrying on banking and financial transaction without obtaining the license;
b. Obtaining license for carrying on banking and financial transaction by submitting incorrect or
false particulars;
c. Carrying on banking and financial transaction against the terms and conditions of license of
carrying on banking and financial transaction;
d. Dealing in forex without license;
e. Extending credit or investing against this Act;
f. Doing irregularity while extending credit, valuating collateral, recovering credit or any other
functions related to it, valuing fictitiously while, auctioning the collateral or accepting it as Non-
Banking Asset (NBA) or selling it after accepting as NBA;
g. Doing irregularity by any director, officer, employee and any other person during merger,
acquisition, cancellation or audit;
h. Aiding and abetting for offence mentioned in Clause (a) to (g).
2. It shall be deemed that the offence under Sub-section (1) has been done by the director, officer
or employee holding the office or person aiding and abetting for such offence, unless such person
proves that such offence has been committed without his/her consent or such person has done
everything in his/her power to prevent such offence from being committed.
3. It shall be deemed to be an offence, if any officer or employee of the branch of any foreign bank
transfers or approves the transfer or gives authority for such or does any act to aid such act the
assets of such branch to any other country.
104. Penalty
1. Following shall be the penalty for doing following offences:-
a. Forfeiting the amount involved and penalty up to 3 times the amount involved and
imprisonment up to 5 years for offence u/s 103(1)(a);
b. Forfeiting the amount involved and penalty up to 2 times the amount involved and
imprisonment up to 2 years for offence u/s 103(1)(b);
c. Forfeiting the amount involved if any and penalty up to the amount involved and imprisonment
up to 1 year for offence u/s 103(1)(c)(d)(e)(f)(g);
d. Forfeiting the amount involved if any and half the imprisonment as compared to the principal
offender for offence u/s 103(1)(h).
2. While calculating the amount involved for the purpose of Sub-section (1) entire amount of
transaction shall be taken into account.
3. While imposing fine under Clause (a) to (d) of Subsection (1) the fine to be imposed shall be the
amount involved if it is clear and if not then from Rs. 10 Lakhs to Rs. 50 Lakhs.
4. Punishment for person committing an offence u/s 103(3) shall be the fine as per amount involved
and imprisonment up to 5 years.
5. If any offence u/s 103 has been committed by any firm, company or institution, the concerned
director, officer, employee or any other concerned person shall be liable for the punishment and
if such person could not be identified, chief executive of such firm, company or institution shall
be punished.
6. If any person has committed an offence u/s 103 and such person has kept or hidden assets in his
name or in the name of his family members, relatives or any other person, such assets shall be
forfeited along with any amount earned by such assets.
105. Appeal
1. Bank or FI and its director, officer, shareholder or employee can appeal to the court within 45
days from the date of receiving the order if aggrieved by any action taken by NRB u/s 99 &
imposing fine u/s 100.
However, while making an appeal by the shareholder of bank or FI against which action has been
taken u/s 99 & fine u/s 100 has been imposed, it shall be made by the representative chosen
among the shareholders representing at least 25% of paid up share capital.
2. While making an appeal under Sub-section (1) against the personal action or fine by any director,
officer, employee or any other person, bond of at least 50% of the amount of fine shall be kept.
3. No person removed from the post of director, officer or employee of any bank or FI shall be
eligible to be director, officer or employee of any other bank or FI till 5 years from the date of
such action or if an appeal has been filed then date of obtaining clearance from the court.
106. No Restriction to take Action
It shall not be deemed to be restricted to take action to any person who has committed an
offence u/s 103 even if such person is no longer in office or is retired from such office.
Chapter-14: Miscellaneous
107. Special Provision related to IDB

1. NRB can provide special policy or give direction in respect of for the incorporation, operation,
regulation, supervision, action, merge, acquisition or cancellation of IDB based on the nature,
extent of investment in such IDB.
2. Notwithstanding anything contained in this Act, incorporation of IDB or maximum shares that a
shareholder can subscribed or limit of investment in shares, debentures or other financial
instruments of such IDB by any foreign bank or FI or other organizational institution shall be as
prescribed by NRB from time to time.
108. Insurance of Deposit
Licensed institution shall insure the deposit as per the prevailing law or the amount in specified
deposit account with NRB.
109. Maintenance of Banking Privacy
1. No other person except for the concerned person shall be given information about the
relationship with bank or FI and customer and books of accounts, accounts, records, ledger,
documents and particulars of bank or FI.
2. Notwithstanding anything contained in Sub-section (1), information or particulars of any person
with bank or FI provided as following shall not be deemed to be the breach of privacy:-
a. Information or particulars have been provided, to NRB as per this Act, NRB Act or rules,
regulations, directions or orders under such Acts or in between bank or FI during the exchange
of credit information;
b. Information or particulars have been provided to the court in relation to any case or legal action;
c. Information or particulars of concerned party have been provided to inquiry committee or any
other officer authorized to investigate as per the prevailing law in relation to investigation or
examination as per the prevailing law or provided such information to supervising authority;
d. Any information or particulars provided to the auditor during the audit;
e. Any information or particulars provided to foreign state as per the prevailing law of mutual legal
assistance;
f. NRB has directed so on the request received from GON, Ministry of Finance for the details of
accounts, with bank or FI, of any particular person, firm, company or institution or the details of
accounts of bank or FI, along with reason thereof during the process of crime investigation of
special nature.
3. Information or particulars obtained as per Sub-section (2) shall not be disclosed or caused to be
disclosed to any unauthorized person.
4. Except in the situation mentioned in Sub-section (2), director, officer, CEO, employee, auditor,
consultant of bank or FI and any concerned person shall not breach or cause to breach the privacy
of books of accounts, ledger, records, documents, accounts or any other confidential matters
causing disruption in the relationship between the bank or FI and its customers.
110. Direction to Freeze the Account
1. NRB can at anytime, on the following situation, give an order to the concerned bank or FI to
freeze the account of any person, firm, company or institution in such a way that no payment or
transfer can be made in any way:-
a. During the course of any investigation of an offence the authorized officer has requested NRB
to do so;
b. To prevent money laundering and offence related to financing to terrorist activities, to maintain
national interest by controlling the corruption, organized crime and offence during banking and
financial transaction.
2. It shall be the duty of every bank or FI to follow the order given by NRB under Sub-section (1).
111. Claim over Deposit
1. No person other than the person keeping such deposit shall have the right to claim over the
deposit kept with bank or FI.
2. Nominated person shall have the right to claim over the deposit at the event of death of the
depositor and if no nominee was declared or such nominee is also dead, the first right to claim
over such deposit shall be of the following persons alive as per the order of priority:-
a. Spouse not separated;
b. Undivided son or daughter, adopted son or daughter or widow daughter-in-law;
c. Undivided father, mother, grandson or granddaughter;
d. Separated spouse, son, daughter, mother or father, son, daughter-in-law or married daughter;
e. Undivided grandfather, grandmother, brother, nephew, niece, sister, separated grandfather,
grandmother;
f. Undivided step-mother, separated grandson from son or granddaughter;
g. Separated brother, nephew, niece, sister;
h. Undivided uncle, widowed aunt, daughter-in-law from brother or granddaughter-in-law;

i. Married sister, separated granddaughter-in-law.
3. If no claim over the deposit has been received because of lack of person as per the priority under
Sub-section (2), such amount shall be deposited in the Banking Development Fund of NRB and
used for the same.
4. Notwithstanding anything contained as per the prevailing law, deposit with bank or FI shall not
be paid to any other person without obtaining prior approval of the concerned person having
claim over such deposit as per Sub-section (2).
112. Details of Unclaimed Deposit
1. A licensed institution shall submit to NRB the particulars of deposit accounts which have
remained inoperative, and of those the title to which have not been claimed under this Act for
ten years, within the first month of each fiscal year.
2. Bank or FI shall publish a notice to receive the amount as per Sub-section (1) in a national daily
once at every 5 years. The detailed particulars of the same shall be published in the website of
bank or FI.
3. If the amount as per Sub-section (1) is not claimed in 20 years, such shall be deposited in the
Banking Development Fund and used in the development of banking.
113. Recovery from or Confiscation of Deposit
If any business or transaction is carried on by pledging as collateral or security the amount
deposited with a licensed institution, or if amounts are deposited with a licensed institution with
misappropriated funds belonging to the governmental body or any body fully owned by the
Government of Nepal, or with funds obtained by committing any action which is deemed to be
an offense under the laws in force, or with funds collected through any activity relating to
terrorism or organized crime, the such deposits may be confiscated or such collateral or security
or misappropriated or other funds may be recovered from such deposits in accordance with the
laws in force.
114. Recovery from the Director
Bank or FI shall recover any cash or kind from the director of such bank or FI if such director was
found to have gained such cash or kind by means of personal gain during the transaction of such
bank or FI.
115. No Claim can be Made
If any person has entered in to a transaction with a director or his/her agent knowing the fact or
there was sufficient reason to believe that such transaction is being carried out for his/her
personal gain or against the interest of bank or FI, no claim against such transaction can be made
on bank or FI.
116. GON to be Plaintiff
1. Any cases related to an offence u/s 103 shall be filed with the GON being plaintiff and such cases
shall be deemed to be included in the Schedule-1 of prevailing Act related to Government Cases.
2. Any person can complain, along with the evidence, either verbally or in writing to the nearest
police office against any director, officer, employee, borrower or any other person who’s done
an offence u/s 103.
3. NRB shall provide necessary assistance during the investigation, inquiry and filing the case.
117. Provision related to Transparency
1. Bank or FI or branch of foreign bank or FI shall at least once in a quarter publish a quarterly report
on its financial situation and situation of risk for the sake of transparency of transaction.
2. Minimum requirement of report under Sub-section (1) shall be as prescribed by NRB.
118. Provision related to the Protection of the Interest of Customer
NRB can do following acts to protect the interest of the customers:-
a. Ensuring that the licensed institutions are carrying their financial transaction as per the law and
providing financial service to the customers in a healthy and transparent manner;
b. Coordinating in financial sector for the protection of the interest of the customer;
c. Collecting necessary information to improve the protection of interest of customers in banking
sector and to bring financial literacy.
119. Waiver and Benefit
1. No written registration of movable or immovable property mortgaged as collateral against the
credit extended up to Rs. 10 Lakhs to any Nepalese Citizen or institution established as per the
prevailing law for the purpose of agriculture, cottage and small industries, irrigation, hydropower
and any other business specified by GON.
2. Maturity period of credit or deposit shall be as specified by the bank or FI.
3. No revenue stamp is to be pasted on any written agreements with bank or FI.
120. Expense Management
NRB can give necessary direction in respect of preliminary, incorporation, administrative,
operating, management and other expenses.
121. Particulars of Assets to be Submitted
Director, officer and CEO shall prepare the statement of all movable and immovable assets in the
name of him/her and his /her family and liabilities within 60 day of end of the FY and submit it to
the concerned bank or FI and notify NRB about the same. While preparing such details source of
such shall also be declared.
122. Sale/Purchase of Credit, Liability & Right on the Collateral of Credit
Notwithstanding anything contained in any prevailing law, unless provided otherwise in the
credit agreement, any credit extended by any bank or FI or liability accepted by it and right on
the property mortgaged against or for the same can be sold or purchased.
123. Resolution of Conflict
1. Any conflict arisen in between bank or FI shall be resolved by mutual cooperation.
2. If the conflict cannot be resolved through mutual cooperation under Sub-section (1), NRB can
resolved the same through the process of resolution or any other means of resolving the conflict
as per the prevailing law.
3. The decision of NRB as per Sub-section (2) shall be final.
124. Not to be Answerable on Acts done in Good Faith
1. Officer or employee of NRB, bank or FI shall not be personally or jointly answerable for ant acts
done in good faith according to this Act or NRB Act, 2058 or rules, regulations under those Act or
directions or orders under those Acts.
2. In case any case has been filed against the officer or employee of NRB, bank or FI for any damage
caused while following to this Act or NRB Act, 2058 or rules, regulations under those Act or
directions or orders under those Acts, such legal expense shall be borne by the concerned
institution.
However, such person shall be personally liable for any acts done with malafide intention or
carelessness manner and legal expense shall not be borne by NRB, bank or FI.
125. Acts not to be Void
Acts done by BOD of bank or FI shall not be void only on the ground that there has been
irregularity while appointing the directors or formation of BOD and office of director has been
vacant.
126. Study Committee or Sub-committee can be Formed
1. NRB can form an Expert Study Committee consisting of representatives of NRB, bank or FI, other
concerned institutions and experts in order to study and submit the report to NRB on banking
and financial law, credit recovery, stability and contemporary improvement of financial sector.
2. NRB can form necessary Sub-committees for the purpose of Sub-section (1).
3. Functions, duties, rights & benefits of committee under Sub-section (1) & sub-committee under
Sub-section (2) shall be as prescribed by NRB.
127. Oath taking
1. Every director, CEO, officer or employee appointed in bank or FI shall take an oath before taking
charge of the position as per the format prescribed in the Annexure.
2. Oath as per Sub-section (1) shall be taken by the Chairman before NRB, CEO before the Chairman
and other officers and employees before CEO or officer prescribed by CEO for the same.
128. Amendment of MOA/AOA
Notwithstanding anything contained in prevailing law, any amendment made in MOA/AOA of
bank or FI shall not be effective unless ratified by NRB.
129. As prescribed by this Act
1. Orders or directions given as per this Act or rules or this Act, rules, regulations, procedures
formed under this Act shall be as per this Act and for any other matters NRB Act, 2058 or other
prevailing law will apply.
2. Regulation, inspection, supervision, & resolution of bank or FI incorporated as per this Act shall
be as per NRB Act, 2058.
130. Power to remove Difficulties
1. NRB can issue necessary order to remove difficulties arose during the implementation of this Act
after obtaining approval from GON.
2. While issuing order to remove difficulties as per Sub-section (1), the reason and justification of
doing so shall also be disclosed.
131. Power to give Order & Direction
NRB can give order and direction being under this Act, rules or regulation issued as per this Act
to bank or FI.
132. Can formulate Rules & Regulations
1. NRB can issue and implement rules and regulations for any matters necessary to implement this
Act.
2. Rules formed under Sub-section (1) shall come into force after GON approves the same.
133. Right to formulate Bye-laws and Procedure
1. BOD of bank or FI can formulate following bye laws in order to operate the institutional,
administrative & business transactions subject to conditions, limit and benchmark specified by
NRB after getting approval from NRB:-
a. In relation to the appointment, promotion, transfer, remuneration, allowance, gratuity,

pension, leave, behavior, discipline & terms of the employment of employee;
b. Financial administration of bank or FI;
c. In relation to writing off the credit;
d. Any other matters specified by NRB from time to time.
2. Except for the matters covered by Sub-section (1), bank or FI can formulate necessary
procedures:-
a. In relation to the meeting of BOD & procedure of GM;
b. In relation to the delegation of power by BOD to CEO, officer or other employees;
c. In relation to conditions of agreement on behalf of bank or FI;
d. In relation to the procedure of use of the stamp of bank or FI;
e. In relation to the valuation of collateral to be mortgaged at the time of extending credit or NBA
to be auctioned;
f. In relation to any other matters to be transacted by bank or FI under this Act;
g. In relation to the printing of documents;
h. In relation to any other matters specified by NRB from time to time.
134. Repeals and Savings
1. BAFIA, 2063 has been repealed.
2. Matters conducted as per the Act repealed under Sub-section (1) shall also be deemed to be
conducted as per this Act.

Banks and Financial Institution Act, 2073: Chapter-1: Preliminary

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Banks and Financial Institution Act, 2073: Chapter-1: Preliminary

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BAFIA English Krishna Niraula (CA)

Banks and Financial Institution Act, 2073

1. Short Title, Extension & Commencement

Chapter-2: Incorporation of Banks & FIs

3. Incorporation of Banks & FIs

Chapter-3: Dealing in Securities

Chapter-4: Provision related to BOD & CEO

14. Formation of BOD

25. Disclosure by Director

Chapter-5: Provision relating to License

Chapter-6: Provision relating to Capital, Capital Fund & Liquid Assets

41. Capital to be Maintained

Chapter-7: Provision relating to Carrying Banking & Financial Transaction

49. Bank or FI can Carry on Banking or Financial Transaction

i. Any other activity as prescribed by NRB.

No bank or FI shall extend credit or facility to any related person.

Chapter-8: Provision relating to Supply and Recovery of Credit

55. Provision related to Supply of Credit

56. Inspection for the Status of Utilization of Credit

Chapter-9: Provision relating to Accounts, Record, Particulars and Report

58. Accounts and Records to be Maintained Accurately

Chapter-10: Provision relating to Merger & Acquisition

69. Bank or FI can be Merged or Acquired

m. Any other necessary matters specified by NRB.

Chapter-11: Provision relating to Voluntary Cancellation of Bank or FI

75. Voluntary Cancellation of Bank or FI

Chapter-12: Provision relating to Compulsory Cancellation of Bank or FI

e. Other functions as prescribed by NRB.

j. Any other particulars as prescribed by NRB.

Chapter-13: Provision relating to Offence, Prosecution & Penalty

99. Regulatory Action

107. Special Provision related to IDB

h. Undivided uncle, widowed aunt, daughter-in-law from brother or granddaughter-in-law;

a. In relation to the appointment, promotion, transfer, remuneration, allowance, gratuity,

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