Banks and financial institutions are given licence to benefit the people.They collect deposits from public and then lends the funds to the industries, factories, businessman and other customers. By doing so, the bank collects interests from the investments and then pays the interest to the depositors. The differences in interest becomes the income of banks. Similarly, the banks and financial institutions also helps its customer by paying the dues on time to the ordered party and collects commission for performing such activities. Banks also perform advisory function, agency function, brokerage functions, underwriting functions and many more. All of these are done for the welfare and development of the society.
However, sometimes banks and financial institutions forgets there basic objective and starts its business operations in the way which is unfavorable to the society. They starts following activities:
- Discriminating customers.
- Cooking books through overstating or understating the Assets and Liabilities.
- Starting unauthorized aligned business.
- Starts dominating the money and capital markets.
- Taking unusual commission.
- Charging unusual interests.
- Charging Unusual fines.
- By not maintaining the Maximum Permissible Banking Finance (MBPF) as per rules.
- By not maintaining sufficient capital as prescribed by the Nepal Rastra Bank.
- By not following the guidelines, provisions, by-laws, directives and Act of Nepal Rastra Bank and so on.
So, I would like to share, the actions of Nepal Rastra Bank which are taken against commercial banks and financial institutions for malfunctioning the business operations and not following the provisions of Nepal Rastra Bank Act, guidelines, provisions, by-laws and directives of Nepal Rastra Bank - which is declared problematic.
They are as follows:
- Prohibit or limit in collection of deposit, credit supply or investment.
- Prohibit any action carried out illegally by breaching the prevailing law and regulation of the bank that is against the interest of commercial bank or financial institution.
- Prohibit from doing some specific business among the businesses allowed to commercial bank or financial institution for specific time.
- Increase the paid capital by issuing new shares or by receiving due amount of issued capital.
- Suspend the right to vote or other rights of shareholder.
- Stop payment of dividend or any other amount to the shareholders to increase the capital.
- Determine limitation to the amount of bonus, salary, compensation and other expenses for the director and other high level management officials.
- Make necessary arrangement for the corporate governance, internal control and risk management of commercial bank or financial institution.
- Maintain sufficient capital and high proportion of liquidity or prohibit business transaction or determination of other necessary terms.
- Limit transaction of the commercial bank or financial institution or prohibit sale of property or expansion of branch office or close any domestic or international branch.
- Maintain necessary arrangement for reduction of risk of the properties which are materially doubtful or securities without proper evaluation or other properties.
- Receive prior approval of the bank for major capital expenditure, substantial commitments having major liabilities or for the expenditure of contingent liabilities.
- Issue order to remove from the post to single or more director or manager or employee as per the necessity.
- Nepal Rastra Bank can remove the director or manager or employee in case of not discharge of the order made, by respective commercial bank or financial institution.
- Suspend board of director of the commercial bank or financial institution and takeover the management of such commercial bank or financial institution in self control or operate the management and transaction of such commercial bank or financial institution by appointed official.
- Order commercial bank or financial institution, which is listed in Stock.
- Exchange for the application of de-listing.
- Prohibit payment of interest and principal for time bond auxiliary loan without having securities of commercial bank or financial institution.
- Take any other action as bank feels necessity and proper to stablize the economy.
Note:
- Here Appointed Official means any person, firm, company or organization appointed by the Nepal Rastra Bank for the management and operation of transaction of the commercial bank or financial institution.
- Generally, the order issued by the Nepal Rastra Bank remain valid for two years from the date of issue unless it is not renewed.
It will be the expenditure of the respective commercial bank or financial institution to bear all the expenses until - Nepal Rastra Bank takes the control of management of any commercial bank or financial institution and makes arrangement for the management and operation of transaction.
In case, Nepal Rastra Bank controls any of the commercial bank or financial institution then:-
- The preliminary report
- Annual report
- prepared by the bank or the officer appointed by the Nepal Rastra Bank is to be submitted to the government of Nepal.
In case of necessity the central bank can revoke or nullify its order issued by issuing another order. However, Such order will contain the basis,reason and other necessary information regarding the need of issuing such order.
The directors, managers, or employees removed by the bank are not allowed to work or involve in transaction in the same commercial bank or financial institution as director, manager or employee or any other post of any commercial bank or financial institution either directly or indirectly.
Similarly, the directors, managers, or employees removed by the bank under the suspended member of board of directors are not allowed to receive or claim any remuneration or compensation under the provision of prevailing law or agreement held directly or indirectly from the date of such order.
Determination of the capital and valuation of assets and liabilities of any
problematic commercial bank or financial institution shall be based on the basis, process and standard determined by the bank.
It is to be noted that, a reasonable opportunity of being heard is allowed while removing or suspending the directors, managers or employee of the commercial bank or financial institution from their post. During the hearing of the action if,
problematic commercial bank or financial institution shall be based on the basis, process and standard determined by the bank.
It is to be noted that, a reasonable opportunity of being heard is allowed while removing or suspending the directors, managers or employee of the commercial bank or financial institution from their post. During the hearing of the action if,
such action does not seems reasonable then Nepal Rastra Bank can annul, change or make necessary decision to the order.
For more details regarding Nepal Rastra Bank, please read the following links:
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