Central bank mulls to dismantle industrialist-bank nexus to avert possible risk in the financial sector.
Nepal Rastra Bank (NRB) governor Dr Chiranjibi Nepal said that the financial sector regulator plans to dismantle the business-bank nexus also to avert conflict of interest.
Though, six years ago then governor and incumbent finance minister Dr Yuba Raj Khatiwada advised bank directors to either become a banker or a businessperson, the central bank has not been able to separate banker and business person as most of the banks and financial institutions have been promoted by the businessmen and industrialists.
It is the central bank’s responsibility to keep hawk’s eye on the banks as they are only the custodians of the public money, he said, adding that the Finance Ministry is preparing an amendment to the Bank and Financial Institutions Act (BAFIA) 2017 including the provision of separating industrialist and banker.
The regulator’s move to include a provision forbidding industrialists and business owners – on the basis of their investment in other private companies – from taking the helm of financial institutions as directors will come after the amendment of the BAFIA is approved by the house.
The amended law is expected to control the practice of injecting public deposits in right shares by directors of financial institutions. Currently, the central bank has barred directors of a bank from withdrawing loans from the financial institution they represent.
In India, a person is not allowed to run a business and a bank simultaneously. And Nepal is trying to follow the Indian model in the banking.
The amendment in the BAFIA-2017 will also have provision that a bank requires to appoint its chief executive officer only after central bank’s screening of the candidate. “A fit and proper test of proposed CEOs, who guide the banks, is necessity of the time.”
Nepal Rastra Bank (NRB) governor Dr Chiranjibi Nepal said that the financial sector regulator plans to dismantle the business-bank nexus also to avert conflict of interest.
Though, six years ago then governor and incumbent finance minister Dr Yuba Raj Khatiwada advised bank directors to either become a banker or a businessperson, the central bank has not been able to separate banker and business person as most of the banks and financial institutions have been promoted by the businessmen and industrialists.
It is the central bank’s responsibility to keep hawk’s eye on the banks as they are only the custodians of the public money, he said, adding that the Finance Ministry is preparing an amendment to the Bank and Financial Institutions Act (BAFIA) 2017 including the provision of separating industrialist and banker.
The regulator’s move to include a provision forbidding industrialists and business owners – on the basis of their investment in other private companies – from taking the helm of financial institutions as directors will come after the amendment of the BAFIA is approved by the house.
The amended law is expected to control the practice of injecting public deposits in right shares by directors of financial institutions. Currently, the central bank has barred directors of a bank from withdrawing loans from the financial institution they represent.
In India, a person is not allowed to run a business and a bank simultaneously. And Nepal is trying to follow the Indian model in the banking.
The amendment in the BAFIA-2017 will also have provision that a bank requires to appoint its chief executive officer only after central bank’s screening of the candidate. “A fit and proper test of proposed CEOs, who guide the banks, is necessity of the time.”
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