NRB Directs Banks to Ensure Fair Employee Management After Merger And Acquisitions

Nepal Rastra Bank (NRB) has directed Class ‘A’, ‘B’ and ‘C’ banks and financial institutions to ensure proportional, transparent and non-discriminatory treatment of employees following mergers and acquisitions (M&A).

The central bank has issued the ‘Risk Management Guideline, 2026’, which requires banks and financial institutions to appropriately address the interests and welfare of human resources during the integration and joint operation of institutions after a merger or acquisition.

According to the guideline, banks and financial institutions must consider human resource management as an important component of overall risk management while implementing merger and acquisition policies.

Where employee reduction becomes necessary following a merger or acquisition, institutions must manage the process on a fair and proportional basis. Similarly, voluntary retirement schemes (VRS) should not be designed or implemented in a manner that discriminates among employees.

The guideline seeks to ensure that decisions related to employee management following changes in an institution’s organizational structure are transparent and based on fair criteria.

NRB has also directed financial institutions to determine employee benefits and incentive schemes on an equitable and reasonable basis after a merger or acquisition.

The benefits and incentives provided to employees should take into account the institution’s requirements and employees’ respective roles and responsibilities, maintaining an appropriate balance between organizational needs and human resources.

The guideline also emphasizes addressing skill gaps that may emerge after a merger or acquisition. As institutions adopt new organizational structures, technologies, systems and working methods, banks are required to identify and address any shortage of skills and capabilities among employees.

The guideline indicates that institutions should not focus solely on reducing the number of employees while overlooking employee training, skills development and capacity building required for the post-merger organization.

The new guideline expands the scope of risk management beyond financial risks and links it with the overall operational resilience of financial institutions.

It covers various aspects of operational risk management, including determining risk-bearing capacity, ensuring continuity of critical services, technology, processes, information, human resources, and dependence on third-party service providers.

Financial institutions are required to distinguish between critical and non-critical operations and establish risk tolerance limits for each critical operation.

Under the guideline, banks and financial institutions must prepare a ‘Risk Tolerance Matrix’ for each critical operation and obtain approval from the board of directors.

The matrix should establish the maximum level of disruption that an institution can tolerate for a particular service or operation, measured in terms of the maximum acceptable duration of disruption or service-level threshold.

This is intended to help institutions determine in advance how much disruption can be tolerated without significantly affecting critical services.

The guideline requires institutions to identify and map the resources necessary to maintain critical operations, including human resources, technology, processes, information, physical infrastructure and third-party dependencies.

Such mapping is intended to help institutions prepare for operational disruptions and prevent problems arising in one area from spreading to other critical services or operations.

NRB has also instructed banks and financial institutions to adequately document their operational risk management policies and procedures, update them regularly, and ensure that relevant employees have access to them.

The policies and procedures should be aligned with the institution’s overall strategy and designed to support continuous improvement in risk management.

The guideline further requires financial institutions to conduct enhanced risk assessment and testing before launching new products, opening new branches, or introducing other new activities.

The provision aims to ensure that potential operational risks are identified and assessed before new activities are brought into operation.