Chapter-5 Provisions Relating to Licenses

31. Prohibition on carrying out Banking or Financial Transactions by anyone other than Banks or Financial Institutions: (1) No one, except the bank or financial institution having obtained a license pursuant to Section 34, shall carry out banking or financial transactions according to this Act.
(2) The Rastra Bank shall formulate and execute a licensing policy concerning banks or financial institutions for the purpose of granting a license to banks or financial institutions.
32. Use of the Name of Banks or Financial Institutions: (1) No one shall use the name of a bank or financial institution for the purpose of carrying out banking and financial transactions without obtaining approval from the Rastra Bank.
(2) No person, company or institution, other than a bank or financial institution having obtained a license to carryout banking and financial transaction pursuant to Section 49 of this Act and a foreign bank or financial institution opening a branch office in Nepal, shall use in its name the words such as “bank”, “finance” or other words or symbol or adjective indicating a similar meaning without getting prior approval from the Rastra Bank.
(3) Notwithstanding anything contained in Sub-Section (2), the provision as referred to in Sub-Section (2) shall not be applicable to the following organizations:-
(a) Any organization established or recognized according to the existing laws, or international agreement or practice,
(b) A company submitting an application for carrying out banking and financial transactions within six months of incorporation.
(4) Notwithstanding anything contained in Sub-Section (2), any bank or financial institution which has obtained approval to carry out financial transactions according to the prevailing laws at the commencement of this Act may carry out financial transactions by using the name on having at the time of approval.
(5) Financial institutions of Class “B”, “C” and “D” shall use the name as “development bank”, “finance company” and “micro finance financial institution” respectively.
(6) An institution having obtained a license to use the name as a micro-finance development bank before the commencement of this Act shall use the name as referred to in Sub-section (5) after the commencement of this Act.
33. Application to be Made to Obtain a License for Carrying on Banking and Financial Transactions: (1) A bank or financial institution wishing for carrying out banking or
financial transactions pursuant to this Act shall make an application to the Rastra Bank for obtaining a license along with as the prescribed by the Rastra Bank.
(2) The bank or financial institution shall also enclose the following details and documents with the application to be made pursuant to Sub-Section (1): –
(a) A copy of the Memorandum of Association and Articles of Association of the bank or financial institution along with a copy of the certificate of incorporation according to the prevailing laws,
(b) Particulars of an office building equipped with all infrastructures required by the bank or financial institution to carry out financial transactions, or, if such a building is to be rented, a copy of the lease agreement and the particulars of the building to be rented, including particulars that there are enough grounds for making available banking and financial services and facilities,
(c) Documents evidencing that the amount of the shares undertaken to be subscribed by promoters is paid to and deposited in the Rastra Bank,
(d) Byelaws Relating to the Conditions of Service and Facilities of the Employees, Financial Administration Byelaws; and Bye-laws relating to Write-off of Loans of the bank or financial institution,
(e) Principal place of business or if addresses of the branches have been identified, addresses thereof,
(f) Consent that the terms and conditions specified by the Rastra Bank for carrying out banking and financial transactions will be abided by,
(g) A business plan prepared by incorporating the business strategy of the bank or financial institution, the organizational structure suitable to the nature of the transaction to be carried out, the internal control and risk management process,
(h) Name-list of the Directors and office bearers of the bank or financial institution and the details stating that they are qualified to become Directors and office bearers according to this Act,
(i) Commitment to meet the minimum capital adequacy ratio set by the Rastra Bank from time to time as long as the bank or financial institution carries out banking and financial transactions,
(j) Commitment that the bank or financial institution will maintain an internal control system for proper management of all potential risks,
(k) Other details and documents specified by the Rastra Bank from time to time.
(3) In the case of a bank or financial institution to be established in joint venture in Nepal by any foreign bank or financial institution, the following details and documents shall also to be submitted to the Rastra Bank in addition to those matters as set forth in Sub-Section (2):-
(a) In the case of a bank or financial institutions of Class “A”, “B”, “C” and “D”, a letter of consent or approval given by the government of the concerned country or the central bank or the regulating agency established according to the laws of the concerned country of foreign bank or financial institution, for carrying out banking and financial transactions in Nepal by such a foreign bank or financial institution,
(b) Upon submission of an application to the Rastra Bank to incorporate a foreign bank or financial institution or upon obtaining permission from the Rastra Bank, if any matter to be submitted by such a foreign bank or financial institution under this Act had not be submitted, details of that matter,
(c) Other information and documents as demanded by the Rastra Bank.
(4) The Rastra Bank may, if while upon carrying out an inquiry into the documents and details so received pursuant to Sub-Sections (2) or (3), finds that any documents or details are not adequate or sufficient, ask for additional documents or details from the concerned bank or financial institution.
34. License may be granted for carrying out Banking and Financial Transactions:(1) In cases where, the Rastra Bank finds, while carrying out inquiry into the application received pursuant to Section 33 and documents and details enclosed therewith, that all requirements to carry out banking and financial transactions according to this Act have been met, the Rastra Bank may issue a license of any class based on the classification of the bank or financial institution as referred to in Section 37 within one hundred twenty days to carry out banking and financial transactions.
(2) The Rastra Bank shall, before issuing a license pursuant to Sub-Section (1), ascertain the following matters:-
(a) That granting of a license for carrying out banking and financial transactions will result in development of healthy competition and effective financial intermediary transactions thereby the result in protection of interests of depositors,
(b) That it is capable of carrying out banking and financial transactions subject to this Act, Rules, Byelaws framed thereunder, Orders or Directives issued as well as Memorandum of Association and Articles of Association,
(c) That the documents and details submitted along with application pursuant to Section 33 for a license are sufficient and adequate physical infrastructures in place,
(d) That any official appointed or involved or to be appointed or to be included in the bank or financial institution is capable of carrying out banking and financial transactions.
(3) In cases where the Rastra Bank has specified the date of commencement of a license while issuing a license to carry out banking and financial transactions, the license shall be deemed to have been commenced from that specified date and if no such date has been specified, the license shall be deemed to have been commenced from the date of the issuance of the license.
35. Power to Refuse to Grant a License: (3) Notwithstanding anything contained in Section 34, the Rastra Bank may refuse to grant a license to operate banking and financial transactions to a bank or financial institution in any of the following circumstances:-
(a) If it causes adverse effects on the stability, fair competition and credibility of the financial system of Nepal,
(b) If it is not reasonable and appropriate to issue a license for operation of financial transactions for the protection of the interests of depositors,
(c) If the infrastructure to operate banking and financial transactions are not completed,
(d) If other particulars or conditions set forth in this Act are not found to be fulfilled.
(2) The Rastra Bank shall, in cases where, it is not possible to grant a license to operate banking and financial transactions pursuant to this Section, inform the concerned bank or financial institution accordingly stating the reasons thereof within ninety days of the date of filing of the application.
36. Power of Rastra Bank to Specify Conditions :(1) The Rastra Bank may, while granting a license for carrying out banking and financial transactions pursuant to Section 34, specify the necessary terms and conditions by giving consideration to the existing condition of the bank or financial institution, healthy operation of financial transactions and interests of depositors. It shall be the duty of the concerned bank or financial institution to abide by such terms and conditions.
(2) The Rastra Bank may bring necessary alterations and changes in the terms and conditions as specified pursuant to Sub-Section (1) from time to time as may be required.
37. Classification of Bank or Financial Institutions: The Rastra Bank shall, based on the minimum paid up capital of a bank or financial institution submitting an application pursuant to Section 33 for carrying out banking and financial transactions and transaction to be operated on by such a bank or financial institution and working areas, classify banks or financial institutions in to classes “A”, “B”, “C” and “D” and issue a license to the concerned bank or financial institutions accordingly:
Provided that an infrastructure development bank shall not be included in any class.
38. Possibility of Being Converted into Higher Class of Bank or Financial Institution: (1) If a bank or financial institution of lower class wishes to be converted into a bank or financial institution of one level higher class, it shall submit an application to the Rastra Bank alongwith the details as specified by the Rastra Bank.
Provided that class “D” institutions cannot be converted into a higher class.
(2) If the Rastra Bank deems appropriate, upon carrying out inquiry into the application and details enclosed with the application as set forth in Sub-Section (1), to convert a bank or financial institution as a bank or financial institution of a higher class, it may grant prior approval subject to the following terms and conditions:-
(a) That it has made payment of the paid up capital requirement for a bank or financial institution of a higher class as prescribed by the Rastra Bank,
(b) That it has been continuously maintaining the capital fund adequacy according to the Rastra Bank directives for the last five years, that it is in profit continuously for the last five years, and the average non-performing loans of the last five years are a within the limits as prescribed by the Rastra Bank,
(c) That the preliminary expenses have already been written off,
(d) That the shares to be issued publicly have been issued and already been allotted,
(e) That the General Meeting has already passed a special resolution for conversion into an upper class bank or financial institution,
(f) That it has met all the conditions as prescribed by the Rastra Bank.
(3) The Rastra Bank shall issue a license of an upper class bank or financial institution pursuant to this Act requiring to make amendments to the Memorandum of Association and the Articles of Association, of the bank or financial institution according to the prevailing laws having obtained prior approval pursuant to Sub-Section (2).
39. List to be Published: (1) The Rastra Bank shall publish a list of the banks or financial institutions carrying out banking and financial transactions every month in the national level newspaper or through any other means.
(2) The Rastra Bank may include the date of commencement of transaction, paid up capital, condition of capital fund, total loans, status of non-performing loans and other details as to deemed necessary by the Rastra Bank on the list to be published pursuant to Sub-Section (1).
40. Special Provisions Relating to Branches of Foreign Banks: (1) In cases where the Rastra Bank has granted a license to an internationally classified foreign bank to carry out
banking and financial transactions through a branch in Nepal, the branch so established in Nepal as per the prevailing company laws shall be deemed as equivalent to a bank or financial institution incorporated pursuant to this Act and unless otherwise provided by this Act or Rules, Byelaws, order or directives framed under this Act, all other provisions shall equally be applicable even in the case of such a branch.
(2) The Rastra Bank may issue the necessary directives with regard to the responsibilities of the officials and employees taking responsibilities of the functions, duties, powers, responsibility, liability, assets, accounts, etc. of a branch of a foreign bank.
(3) A branch of a foreign bank located in Nepal shall, while using its own assets in the course of bearing its responsibility, give first priority to its liability towards Nepal in such manner as not be prejudice to any legal provision.
(4) Notwithstanding anything contained elsewhere in this Act, a branch of a foreign bank may carry out wholesale banking transactions.
(5) The functions and activities of a branch office of a foreign bank shall be as prescribed by the Rastra Bank.