The second amendment to the Nepal Rastra Bank Act forbids employees of Nepal Rastra Bank (NRB) from joining banks and financial institutions (BFIs) for up to three years after quitting their jobs.

The restriction came into force after the Legislature-Parliament endorsed the amendment on Thursday. The proposal was tabled at the House by Finance Minister Krishna Bahadur Mahara for endorsement on the same day.

According to the amended act, deputy governors and executive directors of the central bank can join BFIs only after three years of retirement while directors and other officials can do so after two years.

However, anyone wishing

to join a BFI after

retiring from the central bank has to get its approval and clearance.

The amendment, according to NRB, is aimed at avoiding probable conflict of interest when former central bank employees join BFIs immediately after retirement.

“The prohibitory provisions were inserted in the bill due to concerns that central bank officials could work in the interest of the BFIs which they plan to join after retirement,” said Chintamani Siwakoti, deputy governor of NRB. “So it is necessary to fix a certain prohibitory period for them to avoid conflict of interest.”

“In the past, we have seen many central bank officials joining private banks immediately after quitting which invited conflict of interest in some cases, and it didn’t look good,” Siwakoti added.

The banking industry welcomed the move saying that the provision was necessary from the corporate governance point of view. “Relations between the regulator and the regulated entities are always ‘opposing’, so joining private banks immediately after retirement definitely invites conflict of interest,” said the CEO of a commercial bank. “A ‘cooling off’ period is necessary, and the amendment to the act has been rightly done.”

Initially, the prohibitory period for deputy governors and executive directors had been set at seven years, and for directors and other officials at five years. The parliamentary Finance Committee later reduced the prohibitory periods to three and two years respectively.

A large number of former NRB governors, deputy governors, executive directors and other officials have been employed with different BFIs. Among governors, the first governor of the central bank Himalaya Shumsher JB

Rana established Himalayan Bank, while other former governors Satyaendra Pyara Shrestha joined Nabil Bank as chairman.

Former deputy governor Prafulla Kumar Kafle served as chairman of Century Bank, while former deputy governor Krishna Bahadur Manandhar served as chairman of Nabil Bank.

Similarly, former executive director Rajan Singh Bhandari is now the chief executive of Citizens Bank International while Ratna Raj Bajracharya is the chief executive of Sunrise Bank.

Similarly, formal NRB employees Prithvi Bahadur Pandey, Ganesh Kumar Shrestha and Surendra Man Pradhan, among others, also served as CEOs of different commercial banks until recently.