A new bill on Bank and Financial Institution Act (Bafia) has made stringent provisions on the qualification of directors and chief executive officers, and governance-related issues. The proposed Bafia which Finance Minister Bishnu Poudel recently tabled at the Parliament, has increased the minimum age of director to 25 years from the current 21 years.

 The proposed bill has also confined the tenure of chairman,  managing director and chief executive officer (CEO) for two terms while the term of the professional director has been kept at just one term. Other directors, however, can be elected for several terms.

 Former Deputy Governor Maha Prasad Adhikari said that prolonged stay of chairman, managing director and chief executive officers at the same post has affected the overall governance of banks and financial institutions.

 “Although these provisions have already been made in the NRB directive, it has been sought to be inserted into the act to establish a norm,” he said. He said that term limit has not been fixed for other directors because they are elected based on their share ownership in the BFI.

The defaulters and those blacklisted by both domestic and foreign banks and financial institutions are not allowed to become a director until three years since the lifting of such action. Bafia 2006 is mum over the qualification of the director if he or she has defaulted loans from foreign banks.

The current Bafia has also allowed the Nepal Rastra Bank Governor, Deputy Governor and special class officials to join as director of any bank after one year of their retirement. The proposed Bafia has banned serving government and NRB officials to become director but does not mention whether they would be allowed to become a director after one year.

The proposed Bafia has also broadened the role and responsibilities of the directors of banks and financial institutions (BFIs).  It has told them to prepare a guideline on internal control system and risk management.

The proposed Act has also made stringent provisions on qualifications of the CEO. It has made it mandatory for a person to have obtained a Master’s Degree in management, banking, financial, monetary and economics, commerce, auditing, statistics or law to be eligible to become CEO.

If one has 10 years working experience in these areas as an officer, they would also be eligible to become CEO even if their academic qualification is just a Bachelor’s Degree.  

The existing Act has allows anybody with a Bachelors’ Degree if they have working experience in any bank or financial institution or any organised sector in the executive post for five years.

The  proposed Act has opened the door for the directors, CEO, auditor, company secretary or those responsible in management and accounting of BFI to do transactions of shares among themselves of the concerned BFI by taking approval of the NRB during merger and acqusition, and other special cases.

The bill also has many stringent arrangements regarding compliances of provisions on anti-money laundering.