Banks and financial institutions (BFIs) will now have to take permission from the central bank to hire as well as fire their chief executive officers (CEOs).
The bill to amend the Banks and Financial Institutions Act-2017, registered at the Parliament by Finance Minister Dr Yuba Raj Khatiwada yesterday has proposed mandatory consent from the central bank for banks and financial institutions to recruit or dismiss their chief executives. Earlier, the board of directors of the BFIs could appoint or sack chief executives on their own.
The government is introducing the provision to address the trend of BFIs’ board pressuring the chief executive to issue loans to people based on their recommendations and also at low interest rates. In such a context, the chief executive had no option but to accept recommendation of board members or quit.
The provision has been proposed to make the chief executive officer more professional, the central bank claimed, adding that the provision of taking consent before hiring or firing chief executive is certain to dishearten the boards of directors. “But the bankers themselves also not seem to be happy with the new provision proposed in the amendment bill of BAFIA as according to them, allowing the board to appoint the chief executive makes the board more responsible towards activities and decisions of the bank.”
They said that the central bank should focus on ensuring the appointment of more professional directors in the board. The central bank’s interference in appointment and dismissal of chief executives seems to be driven by the fact that 90 per cent of investment in banks is from public and thus the chief executive should be made more responsible.
They also claimed that the proposed provision is restrictive in nature. The central bank has already set the criteria for qualification and experience that a bank’s chief executive, now the central bank should focus on whether the boards of directors are making appointments of chief executives accordingly or not.
Likewise, the bill – to amend BAFIA – has also fixed maximum of two tenures – altogether four years – for board members at the banks and financial institutions.
The bill to amend the Banks and Financial Institutions Act-2017, registered at the Parliament by Finance Minister Dr Yuba Raj Khatiwada yesterday has proposed mandatory consent from the central bank for banks and financial institutions to recruit or dismiss their chief executives. Earlier, the board of directors of the BFIs could appoint or sack chief executives on their own.
The government is introducing the provision to address the trend of BFIs’ board pressuring the chief executive to issue loans to people based on their recommendations and also at low interest rates. In such a context, the chief executive had no option but to accept recommendation of board members or quit.
The provision has been proposed to make the chief executive officer more professional, the central bank claimed, adding that the provision of taking consent before hiring or firing chief executive is certain to dishearten the boards of directors. “But the bankers themselves also not seem to be happy with the new provision proposed in the amendment bill of BAFIA as according to them, allowing the board to appoint the chief executive makes the board more responsible towards activities and decisions of the bank.”
They said that the central bank should focus on ensuring the appointment of more professional directors in the board. The central bank’s interference in appointment and dismissal of chief executives seems to be driven by the fact that 90 per cent of investment in banks is from public and thus the chief executive should be made more responsible.
They also claimed that the proposed provision is restrictive in nature. The central bank has already set the criteria for qualification and experience that a bank’s chief executive, now the central bank should focus on whether the boards of directors are making appointments of chief executives accordingly or not.
Likewise, the bill – to amend BAFIA – has also fixed maximum of two tenures – altogether four years – for board members at the banks and financial institutions.
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