NRB forbids multiple representation in FIs
KATHMANDU:
To remove the dominance of one group in a financial institution (FI)’s board, the central bank has disallowed multiple representation from a single group in the board.
Any shareholder — whether an individual or an institution — can only appoint a single representative in the FI board from now on. Nepal Rastra Bank (NRB) had issued a circular to this effect on Wednesday.
“We noticed that some investors purchase promoter shares of an institution in their name and buy ordinary shares in the name of their company, then they have a seat in the board as a promoter and also nominate a representative of their company in the board,” explained Bhaskar Mani Gnawali, spokesperson for NRB.
“The same group having a majority in the board can lead to its unnecessarily meddling with the bank’s daily operations and micromanaging, overstepping its authority,” added Gnawali, who also looks after the Regulation Department at NRB.
Likewise, the same shareholder cannot be nominated to a board from both promoters’ shareholders group and from minority shareholders group.
The board of a FI can have five to nine directors that are elected by the shareholders during the annual general meetings from among promoters and public shareholders. Likewise, the board appoints one independent director from the list supplied by the central bank.
The role of the board of directors is pivotal in a bank’s governance as it determines the FI’s policy and sees that polices are executed by the management. However, the board is not directly involved with the everyday operation.
Moreover, the central bank also reiterated its rule regarding ineligibility of a person removed from its blacklist. According to the circular, any individual or firm that has been blacklisted for defaulting on loans will not be eligible to serve in a FI board even after removal from the list.
‘Troubled branches can be bought’
Financial institutions have now been allowed to buy branches of troubled financial companies, according to a directive issued by Nepal Rastra Bank (NRB) on Wednesday. “This will provide much needed financial relief to the troubled institutions while the buying institution will also be able to get a ready-to-serve branch,” informed Bhaskar Mani Gnawali, spokesperson for NRB. However, if the branch is located in the Capital, the buying institutions will have to open three branches outside the Valley within a year. NRB regulation requires financial institutions to open one branch in a government recognised remote district and one in an area outside the Valley to get permission to start operation within Kathmandu. — HNS
Central bank’s refinancing facility
To revive sick industries, financial institutions will be able to obtain refinancing facility from the central bank at minimal interest rate, according to the Working Procedure on Revival of Sick Industries released by Nepal Rastra Bank (NRB). Moreover, even if the banks that are not qualified or interested to get refinancing facility from NRB, they can still finance the revival of sick industries at an interest rate corresponding to its base rate. However, the sick industries have to submit a proper plan to revive their enterprise to the banks. The Sick Industry Rehabilitation Forum at the Federation of Nepalese Chambers of Commerce and Industry states there are around 400 sick companies.
Source: THT
