Central bank stops multiple representation in financial institutions
The central bank has asked the banks an financial institutions not to allow multiple representation from a single group in the board.
The multiple representation from a single group in the board of banks and financial institutions has led to bad governance due to dominance of a single group in the board. It has also encouraged unnecessarily meddling with the bank and financial institutions' daily operations and micromanaging, overstepping its authority.
The central bank's move will help remove the dominance of one group in a financial institution, according to the Nepal Rastra Bank.
"Any shareholder, whether an individual or an institution, can only appoint a single representative in the financial institutions' board," stated the new directives from the central bank.
"It has come to our notice that some investors purchase promoter shares of a bank and financial institution in their name and buy primary shares in the name of their company," it said, adding that they, then, have a seat in the board as a promoter and also nominate a representative of their company in the board making a multiple representation in a banks and financial institutions' board.
The central bank has also directed not to nominate the same shareholder to a board from both promoters’ shareholders group and from minority shareholders group.
The role of the board of directors is key in a bank’s governance as it determines the policy and looks after implementation of polices by the management.
Though, the board is not directly involved with the everyday operation, according to the rule, most of the banks and financial institutions that have run into trouble, has bypassed the central bank directives.
According to the directives, any individual or firm that has been blacklisted for defaulting on loans will not be eligible to serve in a financial institution's board even after removal from the list.
Troubled branches can be bought
KATHMANDU: The central bank allowed financial institutions to buy branches of troubled financial companies. “It will provide much needed financial relief to the troubled banks and financial institutions," the central bank said, adding that the buying financial institution will also be able to get a ready-to-serve branch. However, the central bank rule of opening three branches outside the Valley before opening a branch in the capital will be applicable in buying branch also.