Central bank officials said that the Bafia bill was being readied for presentation to the House. This is the second time the bill will be shown to Parliament, as on the previous occasion, it was dissolved before the legislation could be passed.

The central bank has formed a taskforce under the coordination of NRB Executive Director Bhaskarmani Gnawali to prepare the draft of the new Bafia which will incorporate newly emerged issues in the banking sector and discard those found to be unsuitable. The team has been collecting feedback internally from different departments of NRB.

Gnawali said that the draft Bafia would include topics such as merger and acquisition, money laundering and liquidation. “However, there won’t be major changes in the current structure of banks and financial institutions,” said Gnawali.

Banks and financial institutions (BFIs) are presently categorized into four groups: A representing commercial banks, B representing development banks, C representing finance companies and D representing micro finance institutions.

According to Gnawali, the provisions in the new Bafia will be compatible with the new anti-money laundering ordinance which contains stringent stipulations on enhanced due diligence of politically exposed persons and scrutiny of electronic transactions. Currently, the central bank has been implementing anti-money laundering laws by issuing directives in the name of BFIs. Likewise, the Bafia has opened the door for mergers, and they are being conducted as per the merger bylaws. However, there is no policy on acquisition.

The central bank is currently working on acquisition bylaws which it aims to introduce by mid-February. “Besides introducing the necessary provisions on acquisitions in the bylaws, the issue will also be incorporated in the law,” said another NRB official. As per the proposed bylaws, the central bank is planning to allow acquisitions through cash payment, stock allocation and a mix of cash and stock allocation, according to a senior NRB official.

Since the current Bafia prohibits board members from selling their shares for one year after quitting the board, an amendment has been necessitated to ensure the exit of promoters as part of the acquisition. The central bank official said that the new Bafia would address this issue too.

As far as the provision regarding liquidation is concerned, the central bank is planning to make the provision in the Bafia compatible with the proposed amendment to the NRB Act which would permit it to suggest liquidation of troubled financial institutions in two phases.

As per the proposed amendment to the NRB Act, all the financial aspects of the liquidation will be carried out by the central bank while the court will only deal with the legal aspects. The central bank has made this proposal, which has also been urged by the International Monetary Fund, since the liquidation process had the tendency of dragging on for extended periods.