BAFIA stands for Banks and Financial Institutions Act (BAFIA) 2073. Especially after the People's Movement 2062/63, various old laws were amended in time and the BAFIA Act 2063 was brought. It has 14 chapters and 134 sections. The act, which was later amended in 2073, was registered by the government in the House of Representatives in Chaitra 2080. Although it was discussed clause-wise in the Finance Committee, it has not been passed yet.

What is in the Bafia Act?

According to the three sections mentioned in the bill, there are mainly 30 amendments in the existing act. The main provisions include separating bankers and businessmen, setting the investment sector and criteria of banks, making new arrangements for the purchase, sale and ownership of shares in banks and the financial sector, specifying the qualifications and capabilities of bank directors, and accepting digital currencies.

Why are stock investors scared?

Governor Bishwanath Poudel, who is known as a capital market friend, had made a statement on the Bafia issue some time ago. While talking about the Bafia issue, he said that about 5 trillion rupees of loans were disbursed to a single individual and institution. His statement was discussed in the market in the last 2 trading sessions. Due to which there was selling pressure on the stock market.

 Major Highlights of BAFIA 2073

Banks and Financial Institutions (BFIs) can be registered only as a Public Limited Company. A person desirous to establish BFIs must submit the application in NRB along with MOA, AOA, Feasibility analysis report, Personal details of the applicant, Personal details of members of management committee, promoter’s income sources for investment, and provide clear information on whether or not involved in insolvency, declared convict by law, and blacklisted by BFIs.

BFIs should take approval from Securities Board of Nepal and must register its prospectus in NRB before publishing and distributing it to the general public.

BFIs should aside at least 30% of its total issued capital for subscription by the general public.

BFIs must take approval from NRB before issuing debentures or any other financial instruments.

Maximum 0.5% of total share can be allotted to employees of that BFIs. (Amended in BAFIA 2073)

Promoters can’t sell their shares at least for 10 years from the date of commencement of the bank. (Amended in BAFIA 2073) (See: 10 Major Amendments in BAFIA 2073)

Promoters share can be converted into common equity shares after 10 years of establishment of BFIs.

Prohibition to engage in share trading of the company by a person (along with his undivided family members) who is appointed as CEO, Accountant, and member of the Board of directors of that company. They are not allowed to engage in share trading for one year from the date of resignation from the post of that BFI.

BFIs must have a board of director with at least five and at most seven members. (Amended in BAFIA 2073)

The tenure of the director shall not exceed four years. The directors except for independent director can be reappointed or renominated for next tenure. (Amended in BAFIA 2073)

Board Meeting: at least 12 times a year (gap maximum of 2 months between meetings.)

The promoter, director or shareholder possessing more than 0.1 percent share of that bank and the financial institution or his/her members of the undivided family shall not be allowed to become a Professional Director. (Amended in BAFIA 2073)

No person or entity shall use terms such as a bank, finance company, banking or any other term that reflects the meaning of the same kind with their name.

Banks and Financial Institutions are classified as Class A, Class B, Class C, Class D, and Infrastructure Development Bank (added in BAFIA 2073). (See: 10 Major Amendments in BAFIA 2073)

Class B, Class C, and Class D licensed institutions are not allowed to use other than Development Bank, Finance Company, and Micro Finance Institutions (Amended in BAFIA 2073).

BFIs must maintain the general reserve and must contribute 20 percent of net profit each year until the reserve is equivalent to double of capital, and must contribute 10 percent of net profit each year thereafter.

Dividends can only be distributed after: (i) recovering all preliminary expenses and previous losses, (ii) maintaining minimum paid-up capital and capital reserves, (iii) allocating a pre-specified percent of net profit to General Reserve, and (iv) distribution of shares that have been allocated to public.