Formation of Board and Functions, Duties and Powers Of Nepal Rastra Bank (summary of Nepal rastra bank Act2058)

Chapter-3 Formation of Board and Functions, Duties and Powers

14. Formation of the Board:

 There shall be a Board of Directors in the Bank consisting of the following members:- 

•  Governor                                              -Chairperson  
• Secretary, Ministry of Finance              -Member 
• Two Deputy Governors                         -Member 
• Three Directors appointed by the Government of Nepal from amongst the persons renowned in the fields of Economic, Monitory, Banking, Finance and Commercial Law      -Member 

15. Appointment of the Governor:

         (1) Government of Nepal, the Council of Ministers shall appoint Governor on the basis of the recommendation of the Recommendation Committee formed pursuant to Sub-section (2).

    

    (2) Government of Nepal, the Council of Ministers shall, for the appointment of Governor, form a Recommendation Committee as follows:- 

a) Minister of Finance                                                 -Chairperson,  

(b) One person from among the former Governors    - Member  

c) One person designated by Government of Nepal from amongst the persons renowned in the fields of Economic, Monitory, Banking, Finance and Commercial Law.                                                                            -Member

 

    

  (3) While making recommendation for the appointment of Governor, the committee formed pursuant to Sub-section (2), shall recommend to Government of Nepal, the Council of Ministers the names of three persons renowned in the field of economic, monetary, banking, finance, commerce, management, commercial law and from among the Deputy Governors.

 (4) Government of Nepal, the Council of Ministers shall, out of the names recommended pursuant to Sub-section (3), appoint one person to the Office of Governor. 

16. Appointment of the Deputy Governor: 

(1) Government of Nepal, the Council of Ministers shall, on the recommendation of the Governor, appoint Deputy Governor.

 (2) The Governor shall, while making recommendation for appointment of Deputy Governor pursuant to Sub-section (1), recommend names, double in number of the post falling vacant from among the special class officers of the Bank on the basis of their performance and capability. 

(3) Person appointed in the post of Deputy Governor under this Section shall be deemed to have been automatically retired from the service of the Bank.

17. Appointment of the Directors: 

(1) Government of Nepal, the Council of Ministers shall appoint Directors.

(2) Government of Nepal, the Council of Ministers shall, while appointing Directors, appoint them each representing different sectors from amongst the persons renowned in economic, monetary, banking, financial, commercial, management and commercial law sectors.

18. Tenure of Office of the Directors: 

(1) The tenure of Office of the Governor, Deputy Governor and Directors shall be of five years.

(2) Government of Nepal may, reappoint the retiring Governor for one term and the retiring Directors for any term, if it is deemed necessary. 

19. Remuneration and other Benefits of the Directors: 

    The remuneration and other benefits of the Governor, Deputy Governor and Directors shall be as prescribed by the Board. 

20. Qualifications of the Directors: 

In order to be appointed to the post of Governor, Deputy Governor and Directors, a person shall have to meet the following qualifications:-

(a) A Nepalese citizen; 

(b) Having higher moral character; 

(c) Having work experience in economic, monetary, banking, financial and commercial law sectors after having attained at least master's degree in economics, monetary, banking, finance, commerce, management, public administration, statistics, mathematics and law.

    Explanation:- For the purpose of this Clause, "work experience" means the experience of works in the post of special class of Government of Nepal or of the Bank or in the post of a university Professor or in the post of Executive Chief of class 'A' of a commercial bank or of a financial institution or in the equivalent post or in the post higher than those in terms of the order of protocol.

 (d) Not disqualified under Section 21. 

21. Disqualification of the Directors:

None of the following persons shall be eligible for appointment to the Office of the Governor, Deputy Governor and Director:- 

(a) Member or official of a political party, or

(b) The person blacklisted in relation to transaction with a commercial bank or financial institution, or

(c) An official currently engaged in any commercial bank or financial institution, or 

(d) A person having five percent or more shares or voting right in a Commercial Bank or financial institution, or 

(e) A person rendered bankrupt for being unable to pay debts to creditors, or 

(f) A insane person, or 

(g) A person convicted by a court in an offence involving moral turpitude. 

22. Grounds for Removable of the Directors from Office: 

(1) Government of Nepal, the Council of Ministers shall remove the Governor, Deputy Governor and Director on conditions stipulated under Sub-section (5). 

Provided that Government of Nepal shall not deprive the concerned person from a reasonable opportunity to defend himself/herself prior to remove him/her from his/her office. 

(2) Government of Nepal shall, remove the Governor from his office pursuant to Sub-section (1), on the recommendation of an inquiry committee constituted under Section 23.

(3) While removing a Director or Deputy Governor pursuant to Subsection (1), Government of Nepal shall cause to conduct an inquiry by committee and remove him/her from the office on the basis of the recommendation made by the committee.

 (4) Once Government of Nepal initiates the process for removing the Governor, Deputy Governor and Director pursuant to Sub-section (1), they shall be deemed to have been ipso facto suspended from the office. 

(5) The Governor, Deputy Governor and Director shall be removed from the office on any of the following grounds:- 

    (a) If one is disqualified to become a Director pursuant to Section 21; or 

   (b) The lack of capability to implement or cause to implement the functions which the Bank has to carry out in order to achieve the objectives of the Bank under this Act; or 

    (c) If one has committed any act causing loss and damage to the banking and financial system of the country; or 

    (d) If one is found to have acted dishonestly or with mala fide intention in any transaction related to the business of the Bank; or 

   (e) If professional license is revoked or prohibited from carrying out any profession rendering disqualified to be engaged in any trade or profession on the ground of gross misconduct; or 

    (f) If one is absent for more than three consecutive meeting of Board without a genuine reason; 

(6) Except on the grounds referred to in Sub-section (5), no Governor, Deputy Governor and Director shall be removed from office. 

23. Constitution, Functions and Duties of Inquiry Committee: 

(1) Government of Nepal shall, prior to removing the Governor from office under Sub-section (2) of Section 22, constitute an Inquiry Committee consisted as follows, and remove the Governor from the Office on the basis of the recommendation of such committee:- 

        (a) The person designated by Government of Nepal from amongst the retired Justices of the Supreme Court - Chairperson; 

        (b) Two persons designated by Government of Nepal from amongst renowned persons belonging to economic, monetary, banking, financial, commercial or management sectors - Member 

(2) The Inquiry Committee may, prior to submission of its recommendation to Government of Nepal along with its findings, record the statement and conduct inquiry with, the concerned person. 

(3) The Inquiry Committee may fix its procedure to be followed in connection with the inquiry. 

(4) The Inquiry Committee shall submit its recommendation along with its findings to Government of Nepal within one month. 

24. Resignation by Director: 

The Governor, Deputy Governor or Director may resign from his/her office by tendering a written resignation to Government of Nepal. 

25. Public Notification of Governor's Appointment:

Government of Nepal shall, normally one month prior to the vacancy in office of the Governor, make appointment to the office of Governor in accordance with this Act and issue and transmit public notice of such appointment.

26. Fulfillment of Vacant Office: 

In cases the office of the Governor, Deputy Governor and Director falls vacant before expiry of the tenure of office, Government of Nepal shall, appoint appropriate person to such office for the remaining term of office pursuant to the provisions made under this Act.

27. Acting Governor: 

Government of Nepal shall depute the Senior Deputy Governor of the Bank as Acting Governor to discharge the functions of the Governor in cases where the Governor dies or resigns from office, falls sick, goes on leave or is unable to discharge his/her duties due to any reason.

 28. Meeting of the Board:

 (1) The Governor shall preside over the meeting of the Board.

 (2) The meeting of the Board shall be held as per the requirement of the Bank. Provided that the Board meets at least once in a month. 

(3) The Governor shall call on the meeting of the Board. Provided that in case of a written request from three Directors of the Board to call the meeting of the Board, the Governor shall call the meeting of the Board. 

(4) The Board may frame a separate Bye-law with regard to the procedures for calling the meeting of the Board, conducting the meeting, voting, keeping minutes and for other matters. 

(5) The presence of at least three Directors and of the person presiding over the meeting of the Board shall constitute the quorum for the meeting of the Board. Provided that out of the three Directors presented in the meeting at least one director should be the director appointed under Clause (d) of Section 14. 

(6) The decision of the majority shall be the decision of the Board. In the event of a tie of votes for and against a resolution, the person presiding over the meeting shall exercise a decisive vote. 

29. Functions, Duties and Powers of the Board: 

The functions, duties and powers of the Board shall be as follows: 

(a) To frame monetary and foreign exchange policies; 

(b) To take necessary decisions with regard to the denominations of bank notes and coins, the figures, size, metal, materials for printing notes, and other materials; and to frame appropriate policies with regard to their issue; 

(c) To frame necessary policies for causing the supervision and inspection of commercial banks and financial institutions and banking and financial arrangement. 

(d) To approve Rules and Bye-laws of the Bank and to frame policies applicable to the operation and management of the Bank; 

(e) To frame policies with regard to the appointment, promotion, transfer, dismissal, remuneration, pension, gratuity, provident fund, leave, code of conduct and other terms and conditions relating to the service of the employees of the Bank; 

(f) To approve the annual programs and budget of the Bank and the annual auditing of accounts, and to submit its report to Government of Nepal for information; 

(g) To approve the annual report on the activities of the Bank; 

(h) To frame necessary policy for the issue of license to commercial banks and financial institutions and for revoking such license; 

(i) To approve the limit of the loan to be provided to Government of Nepal by the Bank; 

(j) To fix the amount, limit and terms and conditions of the loan and refinance which the Bank provides to the commercial banks and financial institutions; 

(k) To make decision with regard to the Bank's membership to international organizations, associations; 

(l) To frame policy for the mobilization and investment of Bank's financial resource; 

(m) To submit proposal to Government of Nepal along with the reasons there for if it is necessary to make amendment to this Act; 

(n) To take decision on all other matters excluding the matters which are within the authority of Governor under this Act; and 

(o) To delegate the powers vested on the Board to the Governor or the subcommittee constituted by the Board with or without fixing the time limit. 

30. Functions, Duties and Powers of the Governor: 

(1) The functions, duties and powers of the Governor shall be as follows:- 

(a) To implement the decisions made by the Board; 

(b) To operate and manage the Bank; 

(c) To systematize the functions to be carried out by the Bank; 

(d) To represent and cause to represent on behalf of the Bank in international organizations and associations; 

(e) To implement and cause to implement the policies relating to monetary and foreign exchange matters; 

(f) To formulate necessary policy on rates of interest for deposits and loan with commercial banks and financial institutions; 

(g) To formulate necessary policies with regard to the rates of interest to be paid by commercial banks and financial institution on deposit and loan or the rate of interest to be charged by them on deposits and loan; 

(h) To formulate necessary policies relating to liquidity to be maintained by commercial banks and financial institutions; 

(i) To make necessary arrangement with regard to the basis, amount, methods, conditions and duration of compulsory deposit to be maintained by commercial banks and financial institutions, and its use; 

(j) To fix the terms and conditions relating to adequacy of the capital fund of commercial banks and financial institutions; 

(k) To take decision with regard to the procedures and terms and conditions to be followed while purchasing and selling gold and other precious metals; 

(l) To fix the charge on the services to be provided by the Bank; 

(m) To take decision for opening and closing branch offices and other offices of the Bank as may be necessary; 

(n) To establish and close the agency of the Bank; 

(o) To make necessary arrangement for development and operation of information system of the Bank; 

(p) To make necessary arrangement for supervision of commercial banks and financial institutions; 

(q) To take decision with regard to revocation of the license provided to commercial banks and financial institutions; 

(r) To take decisions on any other matters subject to the powers delegated by the Board of Directors; 

(2) The powers to be exercised by the Governor of a Central Bank in accordance with international practice shall be vested in the Governor.

31. Delegation of Powers: 

The Governor may, in order to conduct the business of the Bank in a smooth manner, delegate authority invested with him/her under this Act to the Deputy Governor or other employees of the Bank.

32. Prohibition on Vested Personal Interests:

(1) After appointment to the office of Governor, Deputy Governor or Director shall, in each six months, should disclose, as prescribed to the Board about any direct or indirect commercial interest of himself/himself or of his/her family members. 

(2) Where any resolution involving personal interest of the Governor, Deputy Governor or Director, shall disclose to the Board about his personal interest on any matter to be discussed in the meeting of the Board, prior to the beginning of discussion on such matters. No such Director shall take part in that meeting. 

(3) No Governor or Deputy Governor shall be allowed to work in a commercial bank and financial institution till one year after retiring from his/her office. 

(4) The Governor and Deputy Governor should make it public the details of property held in his/her name and in the name of his/her family members within one month from the date of appointment and retirement. 

33. Management Committee: 

(1) There shall be a Management Committee, to remain under the Board to be chaired by the Governor in order to conduct the business of the Bank in a smooth manner. The two Deputy Governors shall be other members of the Management Committee, and one senior officer of the Bank designated by the Governor shall act as the member-secretary of the committee. (2) The functions, duties and powers of the Management Committee formed pursuant to Sub-section (1) shall be as prescribed. 

(3) Notwithstanding anything contained in Sub-section (1), the Governor may invite any of the officers to take part in the meeting of the Management Committee. 

(4) The Committee shall, in connection with discharging its functions, evaluate the country's monetary and financial condition on a periodic basis. For this purpose, the Management Committee shall, at least once in a month, submit a report to the Board on the Bank's administration and operation, operation of monetary and other regulatory policies, the soundness of the banking system of the country, condition of money, capital and foreign exchange market, implementation of such policies and impact they may have and situation on the banking system, and on the significant events.

 34. Audit Committee: 

The Board shall constitute an Audit Committee comprising of the following members which will be accountable to the Board:- 

        (a) One Director -Convener

        (b) Chief of Internal Audit Department of the Bank -Member

        (c) One senior officer of the Bank designated by the Board -Member.

35. Functions, Duties and Powers of the Audit Committee: 

(1) The functions, duties and powers of the Audit Committee shall be as follows:- 

    (a) To submit its report and recommendations to the Board on accounts, budget and audit procedures and control system of the Bank; 

    (b) To ascertain whether or not the audit and preparation of periodic balance sheet and other documents of the Bank have been carried out properly;

        (c) To supervise the implementation of the appropriate risk management adopted by the Bank; 

(d) To audit managerial and performance of works of the Bank in order to be assured that the prevailing laws applicable to the Bank have been fully complied with; 

(e) To frame bye-law for auditing of the Bank in accordance with the prevailing laws and international auditing standard and to submit it to the Board for approval. 

(2) The Audit Committee shall, while submitting the report and recommendations to the Board pursuant to Clause (a) of Sub-section (1), furnish the information thereof to the Governor.

37. Professional Code of Conduct and Official Responsibility: 

(1) The Governor and Deputy Governor shall, so long in office, fully devote his/her professional service to the Bank. Except nominated by the Bank they shall not be entitled to assume any type of office or accept job in or render services to any one else with or without remuneration. Provided that this Sub-section shall not restrict to render services by assuming any post in any non-profit making organizations such as Medical Association, Engineers Association, Bar Association, Bankers Association, Chartered Accountants Association and in any other trade and professional organization. 

(2) The Governor, Deputy Governor or Director shall have to provide highest priority to the interests of the Bank while discharging their official duties.

 (3) The Governor, Deputy Governor or Director shall not accept, personally or through any person having any commercial, financial relationship with him, any type of gift or loan in a manner that may cause undue influence of any type in discharging his duties.

38. Confidentiality: 

(1) No Governor, Deputy Governor or Director or employees, Advisor, Auditor, Agent or Representative of the Bank shall be allowed to be engaged in the following acts and activities:- 

    (a) To divulge any published or unpublished confidential information or notice that came to his knowledge while exercising his official duty to any other person; or 

    (b) To use such information or notice for personal gain.

(2) Notwithstanding anything-contained in Sub-section (1), any published or unpublished information in one's knowledge may be divulged on the following grounds in the manner prescribed by the Bank:- 

    (a) Providing such information while discharging one's duties in public, while assisting law enforcement agencies, as per the order of the court or of the authorized officer;

    (b) Providing such information, in connection with discharge of his/her duties, to the external Auditor of the Bank and the employees of international financial institutions; and

    (c) Providing such information in connection with legal actions for the sake of the Bank's interests. 

                                                                                                                               Nishosh Basnet