Chapter- 1 Preliminary

Chapter- 1 Preliminary

1. Short Title, Extension and Commencement: (1) This Act may be called as “Banks and Financial Institutions Act, 2073 (2017).”
(2) This Act shall extend to the whole territory of the state of Nepal and also enforce to a branch or liaison office opened outside of Nepal by a bank and financial institution incorporated in Nepal.
(3) This Act shall come into force at once.
2. Definitions: In this Act, unless the subject or the context otherwise requires, –
(a) “Court” means a Commercial Bench of the Court designated by the Government of Nepal with the approval of the Supreme Court by a notification published in the Nepal Gazette.
(b) “Chairperson” means and includes the Chairperson of the Board of Directors and the Executive Chairperson.
(c) “License” means a license issued by the Rastra Bank in the name of a bank or financial institution to carry out banking and financial transactions, pursuant to this Act.
(d) “Licensed transaction” means banking and financial transactions to be carried out by a bank or financial institution by obtaining a license under this Act.
(e) “Licensed Institution” means a bank or financial institution which has obtained a license pursuant to this Act for carrying out banking or financial transaction.
(f) “Significant Ownership” means a situation where any person has, solely or jointly in association with any other individual or institution, subscribed two percent or more shares of a bank or financial institution and due to share ownership one may have influence on the management of the bank or financial institution.
(g) “Borrower” means an individual, a firm, company or institution obtained credit from bank or financial institution.
(h) “Credit” means, and includes any amount lent by a bank or financial institution to any individual, firm, company, institution or other business enterprise subject to the repayment of there on principal, interest or other charge within the certain time limit, direct or indirect gurantee, interest or other charge of the credit, re-finance, restructuring and renewal of the credit, guarantee given and other commitment made for the repayment of such credit and also any type of credit as specified by the Rastra Bank by publishing a public notice.
(i) “Chief Executive” means, and includes the Chief Executive Officer having responsibility of operating a bank or financial institution and also the Executive Chairperson and Managing Director acting as the Chief Executive.
(j) “Office” means, the registered and central office of a bank or financial institution and also includes any branch office of a bank or financial institution located
within Nepal and outside Nepal and a branch office of a foreign bank or financial institution located in Nepal.
(k) “Net worth” means any amount that remains after deducting the external liabilities from the grand total of the assets to be maintained in the balance-sheet of a bank or financial institution.
(l) “Non-executive Director” means a Director excluding the Executive Director performing daily business of a bank or financial institution.
(m) “Current account” means an account of funds deposited with a bank or financial institution by a costumer that may be withdrawn at any time on demand.
(n) “Paid-up Capital” means the portion of the capital paid up on behalf of shareholders out of the issued capital of a bank or financial institution.
(o) “Risk-weight asset” means the total assets calculated by multiplying the amounts coming under each heading of on-balance sheet and off-balance sheet operations of a bank or financial institution by the risk-weight in the format as prescribed by the Rastra Bank.
(p) “Liquid assets” means the cash balance of a bank or financial institution, the balance remained in the current account, the balance maintained in the Rastra Bank and such assets of a bank or financial institution specified as liquid assets by the Rastra Bank from time to time.
(q) “Prescribed” or “as prescribed” means prescribed or as prescribed in the Rules or Byelaws framed under this Act.
(r) “Securities” means and includes a share, stock, bond, debenture, debenture stock or a mutual investment scheme certificate issued by a bank, financial institution or corporate body or a certificate, saving bond or bond issued by the Government of Nepal or by a corporate body against the guarantee of the Government of Nepal, and also other stock specified by the Securities Board as the stock to be transacted or transferrable through the stock market to sell or exchange such stock.
(s) “Articles of Association” means the Articles of Association of a bank or financial institution framed pursuant to the prevailing laws relating to companies.
(t) “Deposits” means and includes amounts deposited in current, savings or fixed accounts of a bank or financial institution through costumers with or without
accruing interests and also such amounts which a bank or financial institution accepts through different financial instruments as specified by the Rastra Bank from time to time.
(u) “Deposit Guarantee” means the act of security of deposit and guarantee of such deposit pursuant to Section 108.
(v) “Office bearer” means a Director, Chief Executive, Company Secretary and an officer level employee of a bank or financial institution who is authorized to make a decision on any matter.
(w) “Family” means a Director’s husband or wife, son, daughter-in-law, daughter, adopted sun, adopted daughter, father, mother, stepmother and also the elder brother, elder sister-in-law, younger brother, younger sister-in-law, elder sister and younger sister of the Director, who are dependent on him or her:
Provided that the term does not include members of the family being separated after the partition of the family property and carrying out his/her profession or business on his/her own.
(x) “Capital” means the authorized capital, issued capital and paid up capital of a bank or financial institution.
(y) “Capital Fund” means and includes the total sum of primary capital and supplementary capital of a bank or financial institution as specified by the Rastra Bank and also any other fund or amount as specified by the Rastra Bank from time to time.
(z) “Infrastructure Development Bank” means the Infrastructure Development Bank incorporated to carry out financial transactions as referred to in sub-section (5) of section 49.
(aa) “Letter of credit” means a letter written by one bank or financial institution in the name of any other bank or financial institution authorizing the latter thereon to accept cheques, drafts, or bills of exchange of any specified person within the limit of the amount specified therein.
(bb) “Memorandum of Association” means the Memorandum of Association of a bank or financial institution framed pursuant to the prevailing companies’ law.
(cc) “Primary Capital” means and includes the funds of a bank or financial institution listed under such headings as the paid-up capital, share premium, non-redeemable preference shares, general reserve fund and accumulated profit and loss, and also such other funds listed under other headings as may be prescribed as primary capital by the Rastra Bank from time to time.
(dd) “Acquiring Institution” means the holding bank or financial institution acquiring an institution licensed pursuant to this Act.
(ee) “Acquisition” means the act of acquisition by a licensed institution to another licensed institution having settled the accounts of entire assets and potential liabilities by winding up the legal capacity of such institution and also the act of accepting all contractual liabilities by the acquiring bank or financial institution created by the targeted institution before its merger.
(ff) “Savings Account” means accounts containing details of the amounts deposited by any customer for savings in a bank or financial institution.
(gg) “Bank” means and includes corporate body incorporated to carry out banking and financial transactions as referred to in Sub-Section (1) of Section 49 and a branch office of a foreign bank located in Nepal, a branch office opened outside of Nepal by a bank incorporated in Nepal and an Infrastructure Development Bank to performing the functions as referred to the Section 49 and a branch office of the same bank.
(hh) “Banking and financial transaction” means the banking and financial transaction as referred in Section 49.
(ii) “Bonus share” means and includes share issued as an additional share to shareholders, by capitalizing the saving earned from the profits or the reserve fund of a bank or financial institution, and the increase of the paid up amount of a share by capitalizing the saving or other fund.
(jj) “Fixed Account” means a periodic account of funds deposited with a bank or financial institution for a specified term, during which normally the deposited amount cannot be withdrawn.
(kk) “Rastra Bank Act” means the Nepal Rastra Bank Act, 2058 (2002).
(ll) “Rastra Bank” means the Nepal Rastra Bank.
(mm) “Targeted Institution” means a bank or financial institution to be merged in an acquiring institution pursuant to this Act with entire assets and liabilities.
(nn) “Audit Committee” means the Audit Committee as referred to in section 60.
(oo) “Dividend” means cash dividend, interim dividend or bonus share to be given by a bank or financial institution according to this Act and the prevailing laws.
(pp) “Liquidator” means and includes a person appointed for carrying out the functions of liquidation of bank or financial institution according to an order of a court or a resolution adopted by a meeting of the creditors and as well as an office carrying out the function of a liquidator.
(qq) “Leasing” means an act of acquiring only the possessory right of a movable or immovable asset for a specified period of time by retaining the ownership thereof with the bank or financial institution in consideration of which a lessee is required to pay the rent within the schedule as per the agreement.
(rr) “Off-balance-sheet transaction” means and includes letters of credit, letters of guarantee, letters of acceptance, commitments, swaps, options and transaction in advance concerning foreign exchange having, the potential of bearing liabilities by a bank or financial institution and also transactions of the instruments as specified by the Rastra Bank, from time to time.
(ss) “Financial institution” means and includes a corporate body incorporated to carry out banking and financial transactions as referred to in to sub-sections (2), (3) or (4) of Section 49 and a branch office of a development bank, finance company, micro finance institution or a branch office of a foreign financial institution located in Nepal and also a branch office opened abroad by a financial institution incorporated in Nepal.
(tt) “Financial interests” means a situation where any Director, shareholder subscribing one percent or more shares or the Chief Executive or a family member of such a person or the individual, company, or corporate body having the authority to appoint a Director subscribes ten percent or more shares of a firm, company or corporate body separately or jointly, such a person or persons are deemed to have financial interests in the institution having ten percent or more shares, and also include the interests which the Rastra Bank specifies as having
financial interests depending upon the nature and circumstance of a financial transaction.
(vv) “Branch of a foreign bank or financial institution” means a branch of any bank or financial institution having obtained a license from the Rastra Bank in accordance with this Act to carry out banking and financial transactions having opened a branch office in Nepal.
(ww) “Electronic transaction” means and includes the business of accepting deposits, making payments and transferring funds through telephone, telex, computers or magnetic tapes or other electronic equipment of a similar nature and transactions to be carried out through terminal, automated teller machines and cash dispensing machines, as well as those to be carried out through charge cards, debit or credit cards.
(ww) “Prospectus” means the prospectus to be published by a bank or financial institution pursuant to Section 8.
(xx) “Branch Office” means any branch, sub-branch, unit, area, and representative or liaison office of a bank or financial institution within and outside Nepal and any office including a branch or representative office or liaison office or any other office of a foreign bank or financial institution in Nepal.
(yy) “Share” means the divided portion of the share capital of a bank or financial institution.
(zz) “Shareholder” means a person having ownership in a share of a bank or financial institution.
(aaa) “Director” means and includes a member of the Board of Directors and also the Chairperson of the Board of Directors as well as an Alternate Director.
(bbb) “Board of Directors” means the Board of Directors constituted pursuant Section 14.
(ccc) “Promoter” means a person who, having undertaken to subscribe at least one share, signs the Articles of Association and the Memorandum of Association in the capacity of a Promoter for the incorporation of a bank or financial institution pursuant to this Act.
(ddd) “Affiliated person” means a Director, office bearer of a bank or financial institution or his/her family member or any firm, company or institution having substantial ownership of such a person or any person, firm, company or institution having substantial ownership in such a firm, company or institution or also a beneficial owner with substantial ownership thereof.
(eee) “Independent Director” means the person appointed to the position of Independent Director pursuant to Sub-Section (3) of Section 14.
(fff) “Voluntary Liquidation” means a situation in which a bank or financial institution initiates voluntary liquidation pursuant to Chapter 11.
(ggg) “Creditor” means and includes a person or a body corporate to whom/which a bank or financial institution has to pay and also a depositor and debenture-holder for the purpose of liquidation process.
(hhh) “Hypothecation Loan” means a loan disbursed having entered into an agreement between a bank or financial institution and a Borrower against the collateral security of the stock having retained such stock under possession of the borrower concerned.