KATHMANDU, July 24: Nepal Rastra Bank (NRB) has introduced a new rule, barring elected officials of local units, provinces and central level froming becoming board director of bank and financial institutions (BFIs).
Issuing a circular to BFIs after adding a new provision to its Unified Directives issued in Fiscal Year 2016/17, the central bank banned elected representatives to become the chairman or board director of BFIs. According to the central bank, appointment of elected into chairperson or board director could weaken corporate governance of the bank.
With the new rule coming into enforcement, those who have been elected in local units like ward office, rural municipality, municipality and metropolitan as well as in provincial assembly or federal parliament, will have to step down from the post of chairman or board directors of BFIs.
However, the central bank has not required board directors or chairperson of BFIs to quit the board to file candidacy for the election of the public post.
The NRB's rigid approach toward bank directors holding public posts, including the constitutional bodies, follow its recent initiative to further strengthen corporate governance in the banking sector.
Recent amendment to the Bank and Financial Institution Act (BAFIA) has disqualified a person in any constitutional body to remain in the boardroom of BFIs. The provision has been introduced to curb undue influence of the office-bearers on the central bank's efforts toward ensuring corporate governance and banking norms. However, the central bank has not defined what constitutional bodies actually mean.
The new clause was intended to block members of parliament to sit in the bank's board amid lobbying by some lawmakers in the parliament, who were also bank directors, to put undue pressure on the central bank to change its policy and rules.
While there is no any data on how many bank directors have been elected in the local units recently, the new rule requires them to resign from the bank board immediately.