The parliamentary Finance Committee on Wednesday endorsed the bill on the Banks and Financial Institutions Act (Bafia) that has set a two-term limit for CEOs of banks and financial institutions (BFI), provisioned tough penalties for financial misappropriation and barred promoters from holding managerial positions.

However, the new law which is seen to be more progressive than the existing one, has failed to cap the tenure of BFI chairpersons. In what would seem to be a case of conflict of interest, powerful lawmakers who also hold the post of chairperson of commercial banks have used their influence to remove the term limit for bank chairpersons in the new law, thereby ensuring their perpetual hold over BFIs.

The bill that was passed by the Finance Committee will be presented before the full House on Thursday for its endorsement. A sub-committee of the Finance Committee formed under the leadership of Lawmaker Deepak Prasad Kuikel for the final amendment of Bafia had presented the bill to the Finance Committee on Tuesday.

But the committee was unable to pass the bill that day due to opposition from lawmakers representing the Nepali Congress, and another meeting was called on Wednesday.

Overnight, all the members of the committee became agreeable to passing the bill presented by the sub-committee, and it was forwarded to the Work Management Committee of the Parliamentary Secretariat after minor amendments. The committee scrapped the provision of managing director, thereby ensuring no role for promoters in managerial positions in BFIs.  The original draft of the bill on BFIs had put a cap on the number of terms for chairpersons and CEOs. But in the latest draft, only the CEO’s term has been limited to two terms of five years each.

Lawmaker Ichha Raj Tamang and Umesh Shrestha are currently serving as chairpersons of Civil Bank and Prime Bank respectively.

Tamang is also a member of the sub-committee of the Finance Committee responsible for making the final amendment to the bill.

According to experts, the upcoming Bafia, although ‘progressive’ in nature, will be a ‘setback’ for the corporate governance initiative started by Nepal Rastra Bank (NRB) more than half a decade ago.

“It seems like lawmakers have succumbed to pressure from promoters of BFIs,” said an NRB official. “Scrapping the term limit for the position of bank chairperson will definitely lead to some anomalies in the future.”

The source added that the practice of a person holding the position of chairman and CEO for long periods had affected the overall good governance of BFIs in the past, and it is highly likely that it will happen in the future too.

The bill, however, has laid down more stringent provisions for those involved in misappropriation of funds in BFIs. As per the bill, those involved in misappropriation and embezzlement of funds could face imprisonment for six to 12 years.

The new bill states that BFIs can allocate 0.5 percent of their shares to their employees. As per the existing act, they can allocate 5 percent of the shares to their employees during the initial public offering (IPO).

The new bill scrapped the provision stating that it would reduce the number of shares available to the

general public. The members of the Finance Committee concluded that employees of BFIs too have a right to hold shares of the organization they are working for.