Chapter-2 Provisions Relating to Incorporation of a Bank or a Financial Institution

3. Incorporation of Banks or Financial Institutions: (1) Any person, wishing to incorporate a bank or financial institution to carry out financial transactions according to this Act shall incorporate it by getting such a bank or financial institution registered as a public limited company in accordance with the prevailing laws:
Provided that banks or financial institutions which are in operation at the commencement of this Act do not require to be incorporated pursuant to this sub-Section.
(2) An official authorized in accordance with the prevailing laws in force to register a company pursuant to Sub-Section (1) shall register the company subject to Section 4.
4. Prior-approval to be Obtained to Incorporate Banks or Financial Institutions: (1) A person or an institution desires to incorporate a bank or financial institution for the purpose of Section 3 shall, while making an application for getting such a bank or a
financial institution registered according to the prevailing laws, make an application to the Rastra Bank along with the prescribed fee for obtaining prior approval having enclosed therewith the following documents:-
(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 applicant in the form as prescribed by the Rastra Bank,
(e) A certified copy of the agreement, if any, concluded between the applicants prior to incorporation of the bank or financial institution in relation to incorporation of the bank or financial institution,
(f) Evidence of the statement disclosing the sources of incomes and of tax clearance by the applicants up to the fiscal year immediately preceding the making of the application pursuant to this Section,
(g) Details as to whether or not the applicant of the proposed bank or financial institution has become a bankrupt in Nepal or abroad, whether or not he/she has borrowed any loan from any bank or financial institution, whether or not the person has been blacklisted in any transaction with a bank or financial institution, if so, whether or not a period of three years has lapsed after having such a blacklisting,
(h) Self-declaration of the applicant stating that no action has been taken against and no punishment has been imposed on the applicant in Nepal or abroad for being involved in cheating, fraud or any criminal offence deemed to be as such as per the prevailing laws,
(i) Details as to whether or not any action has been taken against the applicant in Nepal or abroad by any regulatory or oversight authority or whether or not a license of the company or bank or financial institution in which he/she is associated with has been suspended, revoked or subjected to compulsory liquidation or is in the course of being so,
(j) Details as to the names, surnames, addresses and relationship of the family members of the applicant; substantial ownership and capacity of each of them and if any of them is a Director, official or employee in any institution, details as to the title of the post each of them holds:
Provided that in cases where a body, applicant is a corporate, details as to the person having substantial ownership or position in that body corporate body, the audited financial statements of the last three years as well as the tax clearance certificate of that corporate body shall also be enclosed.
(k) Written authority given to the Rastra Bank to allow it to conduct or to cause to conduct an inquiry as to the financial and professional background of the applicant and to share such notice and information,
(l) An undertaking that the deposits to the limits as prescribed by the Rastra Bank will be guaranteed,
(m) Other details or documents as specified by the Rastra Bank from time to time.
(2) The Rastra Bank may, if it finds appropriate to grant approval upon the examination of the application submitted for prior approval pursuant to Sub-Section (1) and enclosed documents, grant its approval to incorporate such a bank or financial institution within one hundred twenty days after filing of the application, with or without prescribing any conditions.
(3) Notwithstanding anything contained in Sub-Section (2), no prior approval shall be given to incorporate a bank or financial institution to the following persons and the firms or companies having substantial ownership of such persons and of the members of their family if they had been:
(a) Being investigated in regulatory actions of the Rastra Bank,
(b) Convicted of any banking offence,
(d) Convicted of cheating, fraud, forgery,
(e) Convicted of any offence of money laundering and terrorist financing activities,
(f) Convicted of any the offence of corruption,
(g) Convicted of any serious types of offences such as trafficking-in-person, kidnapping,
(h) Hostage, taking and rape.
5. Prior Approval to be Obtained for Incorporation of Bank or Financial Institution in Foreign Investment: (1) A foreign bank or financial institution shall, for the purpose of obtaining prior approval to incorporate a bank or financial institution as a subsidiary company in accordance with this Act in joint venture with a corporate body registered in Nepal or with a Nepali citizen or to maintain the share capital as specified by the Rastra Bank, shall submit in addition to the documents set forth in Sub-Section (1) of Section 4 the following documents and details along with the fee specified by the Rastra Bank:-
(a) The Memorandum of Association, Articles of Association of the foreign bank or financial institution and a copy of the certificate of incorporation of the bank or financial institution in the country concerned and capital structure thereof,
(b) A copy of the license of the foreign bank or financial institution obtained from the country concerned for carrying out banking and financial transactions,
(c) Details as to the principal place of business,
(d) A certified copy of the audited balance-sheet and profit and loss account of the last three years of the foreign bank or financial institution,
(e) Details as to the proposed business plan in Nepal, business strategies and types of transaction to be carried out, internal control, and risk management,
(f) Decision made by the foreign bank or financial institution as per the prevailing laws of the country concerned to open bank or financial institution in Nepal and the authority granted by the regulatory body of the country concerned.
(2) The Rastra Bank may, if it deems appropriate to grant approval upon examination of the application submitted for prior approval pursuant to Sub-Section (1) and enclosed documents, grant its approval to a foreign bank or financial institution for incorporation of the bank or financial institution in joint venture or within the prescribed share limit within one hundred twenty days after making of an application, with or without prescribing any conditions.
(3) A foreign bank or financial institution may, with approval from the Rastra Bank, take share ownership of a local bank or financial institution having been in operation, as a joint venture by completing the procedures as prescribed by the Rastra Bank.
(4) Notwithstanding anything contained elsewhere in this Act, investment made by any foreign bank or financial institution or other foreign institution by getting approval pursuant to the prevailing laws before the commencement of this Act shall be deemed to have been continued.
6. Approval to be Obtained to Open Branch Office of Bank or Financial Institution:(1) If any internationally rated foreign bank or financial institution wishes to open a branch office to carry out banking and financial transactions or non-banking financial transactions within Nepal, prior approval of the Rastra Bank shall be obtained before opening such a branch office.
(2) For the purpose of Sub-Section (1), an application shall be made to the Rastra Bank along with the capital and fees as prescribed by the Rastra Bank.
(3) While making an application pursuant to Sub-Section (2), such a foreign bank or financial institution shall submit the following details and documents in addition to the details and documents as referred to in Sub-Section (1) of Section 5:-
(a) Written commitment made by the Board of Directors that it will make available on demand of the Rastra Bank the amount necessary for fulfilling its entire liabilities with regard to the
business activities of its branch or representative or liaison office of the foreign bank or financial institution concerned in Nepal,
(b) Details as to the location of the proposed branch office of the foreign bank or financial institution,
(c) Details as to the possible office bearers in the proposed branch office of the foreign bank or financial institution.
(4) The Rastra Bank may, if it deems necessary to demand further documents or details while carrying out inquiry into the documents or details submitted pursuant to Sub-Section (3), demand the required documents or details from the concerned applicants.
(5) The Rastra Bank may, if it deems appropriate to grant prior approval while carrying out inquiry into additional documents submitted pursuant to Sub-Section (3) and of the documents asked for submission pursuant to Sub-Section (4), grant approval to open a branch office in Nepal within one hundred twenty days after filing of the application, with or without prescribing any conditions.
(6) The foreign bank or financial institution, after obtaining prior approval as referred to in Sub-Section (5), shall register a branch office according to the prevailing companies laws.
(7) The branch office of a foreign bank or financial institution registered pursuant to Sub-Section (6) shall make an application to the Rastra Bank along with the following documents and details as well as the charge or fee as prescribed by the Rastra Bank for approval to carry out banking and financial transactions in Nepal:-
(a) Registration certificate registered according to the prevailing laws to carry out baking and financial transactions in Nepal as a branch office,
(c) Letter of approval or consent granted by the Government or Central Bank or regulating agency according to the law of the country concerned of the foreign bank or financial institution to open a branch office of such bank or financial institution in Nepal,
(d) Details of the discrepancy, if any, in any matter to be completed by the foreign bank or financial institution concerned according to this
Act after the submission of the application before the Rastra Bank for the establishment of a branch office of the foreign bank or financial institution or after obtaining approval from the Rastra Bank,
(e) Other information and details as may be demanded by the Rastra Bank.
(8) The Rastra Bank may, if it deems appropriate upon carrying out inquiry into the application received pursuant to Sub-Section (7), grant approval to such a branch office of a foreign bank or financial institution for carrying out banking and financial transactions in Nepal, within ninety days from the date of filing the application.
(9) The Rastra Bank may, while granting approval pursuant to Sub-Section (8), prescribe the necessary terms and conditions.
(10) A bank or financial institution may open a branch office outside Nepal by obtaining approval from the Rastra Bank.
(11) The Rastra Bank may, from time to time, make policies as may be required with regard for opening branch office outside of Nepal pursuant to Sub-Section (10).
7. Power to Refuse to Grant Prior Approval: (1) The Rastra Bank may refuse to grant prior approval for the incorporation of any bank or financial institution and for opening a branch office of the foreign bank or financial institution in any of the following circumstances:
(a) If the name of or banking and financial transaction to be carried out by, the proposed bank or financial institution is not found to be appropriate from the point of view of public interest, religions, ethnicities or communities etc.,
(c) If the objectives of the proposed bank or financial institution are contrary to the laws in force,
(d) If incorporation of the proposed bank or financial institution does not seem to be technically appropriate,
(e) If a study of the feasibility study report, details and documents and other infrastructures submitted by the proposed bank or financial
institution does not provide a ground to believe that it may carry out financial transactions in a healthy and competitive manner,
(f) If all promoters of the proposed bank or financial institution have not signed the Memorandum of Association and Articles of Association, stating their names, addresses and number of shares subscribed by them, in the presence of a witness and the name and address of the witnesses have not been mentioned,
(g) If per person share investment limit and share ownership ratio has not been found to have been maintained as specified by the Rastra Bank from time to time,
(h) If it is found to be contrary to the policy relating to incorporation of banks or financial institutions and licensing policy issued by the Rastra Bank,
(i) If any condition as prescribed by the Rastra Bank has not been found to be fulfilled.
(2) If the Rastra Bank refuses to grant prior approval to the proposed bank or financial institution for any of the reasons as referred to in Sub-Section (1), information shall be given to the applicant stating the reasons thereof.