The parliamentary Finance Committee has passed the Bank and Financial Institutions (BAFI) Bill with the provision prohibiting people holding constitutional positions from becoming chairmen or directors of banks and financial institutions (BFIs).

Similarly, the Bill has set stringent criteria for promoters of BFIs to become directors. Promoters must have a bachelor’s degree and five years of experience in the related field to become a director. The experience requirement has been waived for candidates holding a Master’s degree in economics, management or law.

The Bill has also limited the terms of chairman, managing director and chief executive officer of BFIs to two consecutive four-year terms. The new Bill bars directors of insurance companies from being directors of BFIs.

Likewise, the Bill has adopted Nepal Rastra Bank’s (NRB) idea of segregating business persons and bankers. It bars any business person having a 50 percent stake in a firm to be a director of a BFI from which it has taken loans.

The parliamentary committee concluded discussions on the Bill and included stringent provisions to regulate BFIs five months after it was returned to it by a full House.

Buckling under intense pressure from various stakeholders, the government decided to send the BAFI Bill tabled in Parliament to the Finance Committee for further discussion and amendment.

Various stakeholders had criticized the House committee for coming under the influence of lawmakers who are also promoters of BFIs and tweaking the draft bill prepared by NRB.

The committee adopted a more cautious approach this time by inviting Finance Minister Krishna Bahadur Mahara, NRB Governor Chiranjibi Nepal and Secretary Rajan Khanal to the House committee before concluding discussions on the Bill.

The Bill has come as a respite for promoters wishing to offload their holdings as it allows them to convert their promoter shares into ordinary shares and sell them on the secondary market 10 years after the establishment of the BFI. However, such conversions can be made only after getting the central bank’s approval.

“In order to convert promoter shares into ordinary shares, the approval of NRB is a must, and the central bank will give its okay only after assessing the economic environment of the country and the state of the capital market,” says the Bill. “Also, such conversions should be gradual.”  

The new BAFI Bill allows BFIs to allocate 0.5 percent of their shares to their employees. As per the existing act, 5 percent of the total shares are allocated to employees during the initial public offering (IPO).

The initial draft of the new Bill prepared by the central bank had scrapped the provision stating that such an allocation would reduce the share set aside for the general public. Finance Committee members decided that employees of BFIs too have a right to hold shares in their organization.  

House committee Chairman Prakash Jwala said the Bill would soon be tabled in the full House for endorsement. After the Bill is endorsed by Parliament and signed by the President, it will become law.