Parliament voted overwhelmingly in favour of the Bank and Financial Institution (Bafi) Bill which is expected to strengthen corporate governance in the banking industry after it is signed into law.

Finance Minister Krishna Bahadur Mahara had tabled the bill. Responding to questions raised by lawmakers during discussions in the House, Minister Mahara said the bill aimed to remove anomalies seen in the banking sector, strengthen corporate governance, increase people’s faith in banks and raise the bar for Nepal’s banking sector.

The bill will become law after it is signed by President Bidhya Devi Bhandari.

“Once enacted, it will be instrumental in improving the country’s banking sector and economy,” said Mahara. “It will be a breakthrough in the banking sector as it will contribute to controlling risks seen in the industry.”

The banking industry also welcomed the endorsement of the bill terming it a very important milestone for the industry.

“We are very delighted with the endorsement and are looking forward to implementing it,” said Anil Shah, president of the Nepal Bankers’ Association. “The newly amended bill will not disrupt the daily business of banks and financial institutions (BFIs). But it will ensure sound corporate governance within the banking industry.”

The proposed law prohibits people holding constitutional positions from becoming chairmen or directors of BFIs. Similarly, it has set stringent criteria for promoters of BFIs to become directors. Hopeful directors must have a bachelor’s degree and five years of experience in the related field. 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 bill was first tabled in Parliament in June. It was sent back to the House Finance Committee for further discussion after various stakeholders criticised lawmakers for removing some of the stringent provisions.

They slammed the House committee for being swayed by lawmakers who were also bank promoters into tweaking the draft bill prepared by the central bank.

The bill was again sent to Parliament last November after the tough requirements were put back.

The committee adopted a more cautious approach during the second round of discussions by inviting Finance Minister Mahara, NRB Governor Chiranjibi Nepal and Secretary Rajan Khanal before concluding deliberations.