CHAPTER 2

CHAPTER 2

Provisions relating to Incorporation of Banks or Financial Institutions, and Securities Thereof

3. Incorporation of bank or financial institution :

(1) A person who is desirous of incorporating a bank or financial institution to carry on financial transactions pursuant to this Act may do so by getting such bank or financial institution registered as a public limited company in accordance with the laws in force.
(2) The authority empowered under the laws in force to register a company pursuant to Sub-section (1) shall register the same subject to Section 4.

4. Approval to be obtained to incorporate bank or financial institution :

(1) For the purpose of incorporating a bank or financial institution under Section 3, the concerned person shall, before making an application for the registration of the bank or financial institution pursuant to the laws in force, make an application, accompanied by the following documents and the fee prescribed by the Rastra Bank, to the Rastra Bank for prior approval:
(a) Memorandum of association of the proposed bank or financial institution;
(b) Articles of association of the proposed bank or financial institution;
(c) Feasibility study report of the proposed bank or financial institution;
(d) Personal details of the promoters in the form prescribed by the Rastra Bank;
(e) A certified copy of the agreement, if any, entered into between the promoters prior to the incorporation a bank or financial institution in relation to the incorporation of the bank or financial institution;
(f) Evidence of tax clearance by the promoters up to the fiscal year immediately preceding the making of application pursuant to this Section;
(g) Such other particulars and documents as may be prescribed by the Rastra Bank in relation to the incorporation of a bank or financial institution.
(2) If an application is made for prior approval pursuant to Sub-section (1), the Rastra Bank shall, if it finds appropriate to grant approval upon the examination of the submitted documents, grant its approval to incorporate such bank or financial institution within one hundred twenty days after the making of application, with or without prescribing any conditions. If there exists a ground for refusing to grant such approval, information thereof, accompanied by the reason for such refusal, shall be given to the applicant.
(3) If any foreign bank or financial institution makes an application under Sub-section (1) for the incorporation, under this Act, of a bank or financial institution in joint investment with a corporate body incorporated in the State of Nepal or with a citizen, or as a subsidiary company subscribing cent per cent shares of the foreign bank or financial institution, the Rastra Bank shall grant approval for the incorporation of such bank or financial institution pursuant to Sub-
section (1).

5. Power to refuse to grant approval :

(1) The Rastra Bank may refuse to grant prior approval for the incorporation of a bank or financial institution in any of the following circumstances:
(a) If the name of the proposed bank or financial institution is identical with the name of any bank or financial institution which has already been registered and is still in existence;
(b) If the name of the proposed bank or financial institution or the financial transactions to be carried on by it appears to be improper or undesirable in view of public interest, decency, etiquette, religion, nationalities or communities;
(c) If the objectives of the proposed bank or financial institution are contrary to the laws in force;
(d) If the incorporation of the bank or financial institution seems to be technically inappropriate;
(e) If a study of the feasibility study report, particulars and documents and information on other infrastructures submitted by the proposed bank or financial institution does not provide a ground to believe that it can carry on financial transactions in a healthy and competitive manner;
(f) If application for the registration of the memorandum of association and articles of association has not been made in the names of all promoter members of the proposed bank or financial institution;
(g) If all promoters of the proposed bank or financial bank or financial institution have not signed the memorandum of association and articles of association, also setting out their names and addresses, in the presence of any one witness, and the name and address of the witness has not been set out;.
(h) If every promoter of the proposed bank or financial institution has not agreed to subscribe at least one share of that bank or financial institution;
(i) If every promoter of the proposed bank or financial institution has not clearly specified the number of shares to be subscribed by him or her while affixing his or her signature on the memorandum of association;
(j) If the fees required to be paid and the documents to be submitted pursuant to Section 4 have not been paid or submitted;
(k) If any condition prescribed by the Rastra Bank is not fulfilled.
(2) If the Rastra Bank refuses to register the memorandum of association and articles of association of the proposed bank or  financial institution in any of the circumstances referred to in Sub-section (1), it shall give a notice thereof to the applicant.

6. Prospectus :

(1) Before publicly issuing its securities, every bank or financial institution shall obtain approval of the Securities Board in relation to the registration of the prospectus in accordance with the laws in force relating to securities and have the prospectus registered with the Rastra Bank. Until the prospectus is so registered, the bank or financial institution, or anybody acting on behalf of such bank or financial institution shall not publish the prospectus of such bank or financial institution.
(2) The procedures required to be fulfilled while publishing a prospectus pursuant to Sub-section (1) and the matters to be mentioned in the prospectus shall be as mentioned in the laws in force relating to securities.
(3) The bank or financial institution shall, subject to the laws in force relating to securities, make an application in writing to the Securities Board for the approval of the Securities Board for the purpose of registration of its prospectus.
(4) The Rastra Bank shall not register a prospectus until it receives information in writing that approval has been given by the Securities Board in relation to the registration of the prospectus.
(5) If any person intends to inspect the prospectus, the bank or financial institution shall allow such person to inspect the prospectus, without collecting any fee or charge.

7. Allotment of shares :

(1) Every bank or financial institution shall set aside at least thirty per cent of its total issued capital for subscription by the general public. The bank or financial institution may set aside a maximum of five per cent of the shares so set aside for its employees. Provided that the shares in such percentage as prescribed by the Rastra Bank in the case of a bank or financial institution incorporated in joint venture with a foreign bank or financial institution shall be sold and allotted to the general public.
(2) While inviting application from the general public for the subscription of its shares, every bank or financial institution shall demand payment of cent percent amount of the face value of its shares along with application.

8. Dealing in securities :

(1) While issuing its securities for subscription by the general public, every bank or financial institution do all acts such as the sale, allotment, and recovery of amounts, of such securities in accordance with the laws in force relating to securities.
(2) Every bank or financial institution shall file with the Rastra Bank and the Securities Board a copy of an agreement made by it on the dealing of securities through any institution dealing in securities, within seven days after the date of making of such agreement.

9. Prohibition on selling or pledging shares and debentures :

(1) Notwithstanding anything contained in the laws in force, the promoter of a bank or financial institution shall not be entitled to sell or pledge any share registered in his or her name for at least five years from the date of commencement of financial transactions. Provided that if there arises a special circumstance due to the emergence of any obstruction or hindrance in the operation of a bank or financial institution, nothing in this Sub-section shall be deemed to prevent the granting of permission by the Rastra Bank to the promoters to sell shares between or among them.
(2) If the promoter of a bank or financial institution wishes to sell or pledge the shares held in his or her name after five years from the date of commencement of financial transactions by the bank or financial institution, he or she may sell or pledge such shares, subject to the conditions prescribed by the Rastra Bank.

10. Prohibition on purchase by bank or financial institution of its own shares :

(1) No bank or financial institution shall purchase its own shares (buy-back) or lend moneys against security of its own shares.
(2) Notwithstanding anything contained in Sub-section (1), in the following circumstances, a bank or financial institution may, with the approval of the Rastra Bank, so buy back its shares out of its free reserves available for being distributed as dividends not exceeding the percentage prescribed by the Rastra Bank:
(a) If the shares issued by the bank or financial institution are fully paid up;
(b) If the shares issued by the bank or financial institution have already been listed in the Securities Board;
(c) If the buy-back of shares is authorized by the articles of association of the concerned bank or financial institution;
(d) If a special resolution has been adopted at the general meeting of the concerned bank or financial institution authorizing the buy-back;
(e) If the ratio of the debt owed by the bank or financial institution is not more than twice the capital and general reserve fund after such buy-back of shares;
Explanation: For the purposes of this Clause , “debt” means all amounts of secured or unsecured debts borrowed by the bank or financial institution.
(f) If the value of shares to be bought back by a bank or financial institution is not more than twenty percent of the total paid up capital and general reserve fund of that bank or financial institution;
(g) If the buy-back of shares is not in contravention of the directives issued from time to time by the Rastra Bank in this respect.
(3) Any bank or financial institution shall make an application, setting out the following matters, to the Rastra Bank to obtain approval of the Rastra Bank for the purposes of Sub-section (2); and if such application is made and, based on the matters received, it appears appropriate to give approval to the bank or financial institution to purchase its own shares, the Rastra Bank may give approval for the same:
(a) The reason and necessity for the buy-back of shares;
(b) A statement of the evaluation of possible impacts on the financial situation of the bank or financial institution as a result of the buy-back of shares;
(c) The class and number of shares intended to be bought back;
(d) The maximum or minimum amount required to buy back shares as referred to in Clause (c), and source of such amount;
(e) The time limit for the buy-back of shares;
(f) The mode of the buy-back of shares;
(g) Such other necessary matters as specified by the Rastra Bank and as required to be disclosed under the laws in force, in respect of the buy-back of shares.
(4) On receipt of the approval pursuant to Sub-section (3), the concerned bank or financial institution may buy back its shares in any of the following manners, within six months after the date of receipt of such approval or twelve months of the adoption of a special resolution at the general meeting, whichever occurs later:
(a) Purchasing from the stock exchange;
(b) Purchasing from the concerned employees of the bank or financial institution the shares allotted to them pursuant to this Act;
(c) Purchasing from the existing shareholders on a proportionate basis.
(5) If a bank or financial institution buys back its own shares pursuant to Sub-section (4), it shall file with the Rastra Bank a return containing the number of shares bought back, amount paid for the same and other necessary details within thirty days of the date of such buy-back.
(6) There shall be established a separate capital redemption reserve fund, to which a sum equal to the nominal value of the shares bought back pursuant to Sub-section (4) shall be transferred; and the amount of such fund shall be maintained as if it were the paid-up capital.
(7) If a bank or financial institution buys back its shares pursuant to Sub-section (4), it shall cancel the shares so bought back within one hundred twenty days of the date of such buy-back.
(8) Other conditions where a bank or financial institution cannot buy back its shares and other terms required to be complied with in the buying back of its shares shall be as prescribed by the Rastra Bank.

11. Restriction on dealing in securities :

(1) No director, chief executive, auditor or secretary of a bank or financial institution, or any person directly involved in the management and accounting functions of a bank or financial institution shall sell, purchase or pledge, gift or exchange, or cause to be purchased, pledged, gifted or exchanged, the securities of the concerned bank or financial institution or those of its subsidiary company under his or her own name or in the name of his or her family or in the name of any firm, company or body controlled by him or her or by his or her family control while he or she holds such office or until at least one year from the date of his or her retirement from that office. Provided that this restriction shall not be applicable in the case of the newly issued shares.
(2) If any person does any act in contravention of Sub-section
(1), the concerned bank or financial institution shall forfeit such securities.
(3) The Board may sell and dispose of the securities forfeited pursuant to Sub-section (2) in such manner as it may think appropriate