A bill to amend the Bank and Financial Institutions Act (Bafia), 2073 has been registered in the Parliament. The Ministry of Finance registered the bill in the House of Representatives last Monday with important provisions including giving legal recognition to the use of digital currency and digital banking, seeking clarity on the responsibilities of people on the board of directors of banks, and discouraging the tendency to take large loans from banks that are themselves shareholders.

According to the ministry, it is necessary to effectively manage and regulate banks and financial institutions based on nationally and internationally developed financial systems, financial tools, financial security, and financial risk.

It is said that the Bafia Bill has been introduced because it is necessary to use the changes in technology and to organize the financial jurisdiction of all the three levels of government mentioned in the existing law. Likewise, to increase the credibility of the overall banking and financial system of Nepal, to build a strong and stable national economy and to maintain the bank It is also said that the existing law is going to be amended to manage the establishment, operation, management and regulation of financial institutions.

Bafia Bill is trying to define digital currency. "Digital currency should be understood as the digital currency issued by Nepal Rastra Bank," the bill says. Nepal Rastra Bank is currently studying digital currency. 

Similarly, a new arrangement has been placed in the bill to give digital banks the right to conduct banking and financial transactions. "Subject to the Bafia Act, other prevailing laws, articles of association and regulations and the limits, conditions or instructions set by the National Bank, the digital bank can carry out banking and financial transactions, including taking deposits, granting loans, as specified by the National Bank,"  It is stated in the bill. A digital bank is included in the definition of a bank, while the amount deposited through electronic means is going to be considered as a deposit.

In banks and financial institutions, the definition of 'executive chairman' has been removed and only the provision of chairman has been kept. Similarly, it is proposed to change the definition of 'substantial ownership'. "Said ownership" means a situation where a person or an organization jointly holds one percent or more of the paid-up capital of a bank or financial institution, or can influence the management of the bank or financial institution due to share ownership,' the bill states. The existing Bafia Act considers this provision to be two percent.  

The definition of debtors of banks and financial institutions has also been proposed to be amended. "Debtor" means a person, firm, company or institution that takes a loan or holds a credit card issued by a bank or other instrument of a similar nature,' the bill says. Earlier, individuals and companies taking credit card facilities were not included in the definition of debtor. The definition of mortgage has been added in the bill. It is further provided that "collateral should be understood as the property provided to the bank by the borrower as security for the loan taken from the bank or financial institution."     

There is a need to make provision that one cannot be the director of more than one financial institution. In order to ensure the representation of women in the board of directors, the bill stipulates that at least one woman should be appointed as the director of a bank or financial institution with female shareholders. Similarly, in the existing law, there is a provision that at least one independent operator can be appointed in a bank-financial institution, and it has been amended to appoint two independent directors, including at least one woman.      

The existing arrangement regarding the tenure of directors of banks and financial institutions is also going to be amended through the bill. According to the existing law, there is a provision that the director will be for a maximum of four years and can be reappointed and nominated. By amending it, a director can be re-appointed as a director for another term only after the end of his term of office. After the proposed bill is passed by the parliament and comes into force, persons who have not reached the age of 25 years and who have exceeded the age of 70 years will not be allowed to be directors of banks and financial institutions. The existing Bafia Act has set the minimum age of 25 years to be a director, but the maximum age limit has not been set. According to the

bill, if a person wants to be a director, the total business loan taken by him and his family affiliated company or organization in such a bank or financial institution cannot exceed one percent of the total paid-up capital. There is no such provision in the existing Bafia Act. It is necessary to determine the limit of the business loan taken by the related person or his family.      According to the

bill, the meeting of the board of directors of banks and financial institutions must be held at least once every month to make it regular. A bill has been prepared to strictly apply the law related to prevention of money laundering in banks and financial institutions.      

There is a rule that one bank and financial institution cannot invest in the securities of another bank and financial institution. But in order to make the provisions related to bonds effective for investing in areas such as agriculture, tourism, energy, and infrastructure that the government deems necessary, it is going to be included in the law that allows investment in bonds.      

Banks and financial institutions are not allowed to give any kind of loan to a person affiliated with them or to a person who owns one percent share in a bank. But it is mentioned in the bill that it is not considered to be a hindrance to issue a guarantee with 100 percent cash margin, to provide loans by declaring as a related party on the receipt of the licensed institution's own term receipts and mortgages of Nepal Government or Nepal Rastra Bank and to provide household loans.     

Similarly, a person who owns one percent of shares in any bank or financial institution is not allowed to work as a legal, revenue, accounting or financial management consultant, mortgage appraiser or auditor of the affiliated bank or financial institution. After the bill becomes law, all bank financial institutions will have to prepare a list of people who own more than one percent of shares and submit it to Nepal Rastra Bank. Such a list must be submitted to the National Bank within 35 days of the end of every financial year.         According to the

ing law, banks and financial institutions will have to prepare a monitoring schedule for the purpose for which the loan was given to the borrower, whether the borrower has utilized the loan amount for that purpose or not. Although the provision for such monitoring is laid down in the existing law, it was not clear when and how often the monitoring would be carried out.