HoR approves first amendment to Banks and Financial Institutions Act 2017

KATHMANDU: During a session of the House of Representatives (HoR) on Thursday, the Banks and Financial Institutions Bill 2024, representing the first amendment to the Banks and Financial Institutions Act (BAFIA) 2017, received approval. This significant legislation, aimed at regulating Nepal's vital financial market, was passed within the past two and a half months after being introduced in parliament. Initially approved by the Cabinet on February 8, the bill was presented in the lower house on March 18.

The revised BAFIA encompasses several provisions, including the conditional validation of digital currencies and the establishment of an age limit of 70 years for individuals serving as board members of banks and financial institutions (BFIs). While the existing BAFIA imposes a maximum term for chief executive officers (CEOs) of BFIs, no such limit existed for board directors. The new proposal introduces an age limit for board members.

Moreover, the law suggests the introduction of digital currencies into circulation, with Nepal Rastra Bank (NRB) being in charge of issuing them. The central bank will be able to issue licenses to other businesses to function as digital banks, allowing them to accept deposits, give loans, and conduct other financial operations utilizing digital currency, subject to NRB standards.

Additionally, the proposed amendment seeks to reduce the individual ownership limit of BFIs from two percent to one percent of the paid-up capital of the respective institutions. The bill also introduces a formal definition of collateral for the first time, specifying that any asset provided to a BFI as security when obtaining a loan will be considered collateral.

The bill further mandates microfinance institutions to issue primary shares to their borrowers, with the allocation capped at 40 percent of the offerings designated for the general public. It also proposes restrictions on individual board members, including a limit of serving in only one BFI and a maximum tenure of two terms. Moreover, the bill stipulates that BFI board members must hold a master's degree and possess at least five years of relevant work experience. After a 72-hour period for lawmakers to submit any further revisions, the bill will proceed to the parliamentary Finance Committee for discussion.