part 1

1 (un-official translation – NRB use only) Bank and Financial Institution Act, 2073 (2017) Nepal Gazette Published by Government of Nepal Part 67 Kathmandu, Baishakh 10, 2073 BS (April 23, 2017 AD) (Pre-Additional Number 1A) Part-2 Government of Nepal Ministry of Law, Justice and Parliamentary Affairs The Act, enacted by Legislature-Parliament pursuant to Sub-Article (1) of Article 296 of Constitution of Nepal as mentioned hereunder, is hereby published for the information of general public. Act No. 1 of the year 2074 An Act enacted for amendment and consolidation in laws relating to Banks and Financial Institutions Preamble: Whereas, it is expedient to amend and consolidate forthwith the prevailing laws relating to banks and financial institutions in order to increase confidence of general public towards the overall banking and financial system of the country; to protect and promote the rights and interests of depositors; to provide quality and reliable banking and financial services to general public through healthy competition among banks and financial institutions thereby making national economy sustainable and strong; and to maintain financial stability and make necessary legal provisions concerning establishment, operation, management, regulation, inspection and supervision of banks and financial institutions; Now, therefore, be this Act enacted by the Legislature-Parliament pursuant to in Sub- Article (1) of Article 296 of the Constitution of Nepal.

2 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: Unless the subject or the context otherwise requires, in this Act,- (a) "Court" means Commercial Bench of the Court designated by Government of Nepal with approval from the Supreme Court by publishing a notice in the Nepal Gazette. (b) "Chairperson" means the Chairperson of the Board of Directors and the word also includes the Executive Chairperson. (c) “License” means the license issued by the Rastra Bank under this Act in the name of a bank or financial institution to carry on banking and financial transactions. (d) “Licensed transaction” means banking and financial transaction to be carried out by bank or financial institution by obtaining license under this Act. (e) "Bank or financial institution" means a bank or financial institution which has obtained a license pursuant to this Act for carrying on banking or financial transaction. (f) “Significant Ownership” means a situation where any person has, solely or jointly in association with other person or institution, subscribed two percent or more shares of a bank or financial institution and due to which he/she/it may have influence on management of the bank or financial institution..

3 (g) "Borrower" means person, firm, company or institution obtained credit from bank or financial institution. (h) “Credit” means the amount lent by bank or financial institution to any person, firm, company, institution or other business enterprise subject to repay principal, interest or other charge within certain time limit, direct or indirect commitment, interest or other charge of the credit, re-finance, restructuring and renewal of the credit, guarantee and other commitment issued for the repayment of such credit and the term also includes any type of credit as specified by the Rastra Bank by publishing public notice. (i) “Chief Executive” means the Chief Executive Officer having responsibility of operating a bank or financial institution and the term also includes the Executive Chairperson and Managing Director working as the Chief Executive. (j) “Office” means the registered and central office of bank or financial institution and the term also includes any branch office of a bank or financial institution located within Nepal and outside from the territory of Nepal and a branch office of a foreign bank or financial institution located in Nepal. (k) “Net worth” means the amount remaining after deducting the external liabilities from the grand total of the assets to be mentioned in the balance- sheet of a bank or financial institution. (l) “Non-executive Director” means the Director except the Executive Director performing daily function of bank or financial institution. (m) “Current account” means an account of funds deposited with a bank or financial institution by the costumer as 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 on the format as prescribed by the Rastra Bank..

4 (p) “Liquid assets” means the cash balance of a bank or financial institution, the balance remained in the current account, the balance maintained in 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 a share, stock, bond, debenture, debenture stock, or mutual investment scheme certificate issued by a bank, financial institution or body corporate; certificate, saving bond or bond issued by Government of Nepal or by a corporate body against the guarantee of Government of Nepal, and the word also includes 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 Articles of Association of a bank or financial institution framed pursuant to the prevailing laws relating to companies. (t) “Deposits” means amounts deposited in current, savings or fixed accounts of a bank or financial institution through costumer with or without accruing interests and the term also includes 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 or guarantee of such deposit pursuant to Section 107. (v) “Office bearer” means a Director, Chief Executive, Company Secretary and officer level employee of a bank or financial institution authorizing to make decision on any matter. (w) “Family” means Director’s husband or wife, son, daughter-in-law, daughter, adopted daughter, father, mother, stepmother including elder brother, elder sister-in-law, younger brother, younger sister-in-law, elder sister and younger sister of the Director, to be cared or nurtured by him or her..

5 Provided that the term does not include the member of the family being separated with 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 the total sum of primary capital and supplementary capital of a bank or financial institution as specified by the Rastra Bank and the term also includes other fund or amount as specified by the Rastra Bank from time to time. (z) “Infrastructure Development Bank” means an Infrastructure Development Bank incorporated to carry on financial transactions as mentioned 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 stating 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 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 the term also includes 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 being licensed pursuant to this Act. (ee) "Acquisition" means the act of acquisition by a bank or financial institution to another bank or financial institution having settled the accounts of entire assets and potential liabilities by winding up the legal capacity of such bank or financial institution and the term also includes the act of accepting all.

6 contractual liabilities by the acquiring bank or financial institution created by the target institution before its merger. (ff) “Saving Account” means the account containing details of the amount deposited by any customer for saving in a bank or financial institution. (gg) “Bank” means a corporate body incorporated to carry on banking and financial transactions pursuant to Sub-Section (1) of Section 49 and the term also includes 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 carry on functions pursuant to sub- Section (5) of Section 49 and 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 a 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 this term also includes the increase of the paid up value 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 such term normally the deposited amount cannot be withdrawn. (kk) "Rastra Bank Act" means Nepal Rastra Bank Act, 2058 (2002). (ll) "Rastra Bank" means the Nepal Rastra Bank. (mm) “Targeted Institution" means the bank or financial institution to be merged in the acquiring institution under this Act with entire assets and liabilities. (nn) “Audit Committee” means the Audit Committee a referred to in section 60. (oo) “Dividend” means the cash dividend, interim dividend or bonus share to be given by a bank or financial institution according to this Act and prevailing laws. (pp) "Liquidator" means the person appointed for carrying out the functions of liquidation of the bank or financial institution according to an order of a.

7 court or a resolution passed by a meeting of the creditors and the word also includes an office carrying out the function of liquidator. (qq) "Leasing" means the act of acquiring only the possessory right of a movable or immovable assets for specified period of time by retaining the ownership thereof with the bank or financial institution and subject to pay amount therefor in specified timetable by the costumer according to an agreement. (rr) "Off-balance-sheet transaction" means letter of credit, letter of guarantee, letter of acceptance, commitment, swap, option and transaction in advance concerning foreign exchange having possibility of bearing liabilities by a bank or financial institution and the word also includes transaction of the instruments as specified by the Rastra Bank from time to time. (ss) “Financial institution” means a corporate body incorporated to carry on banking and financial transactions pursuant to sub-sections (2), (3) or (4) of Section 49 and the terms also includes a branch office of a development bank, finance company, micro finance institution or a branch office of a foreign finance company located in Nepal or a branch office opened in 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 Chief Executive or family member of such person or the person, company, or corporate body having authority to appoint a Director subscribes ten percent or more shares of a firm, company or corporate body separately or jointly, such person or persons are deemed to have financial interests in the institution having ten percent or more shares, and the term also include the interests which the Rastra Bank specifies as having financial interests depending upon the nature and circumstance of financial transaction. (uu) “Branch of a foreign bank or financial institution” means a branch of any bank or financial institution having obtained license from Rastra Bank under this Act in order to carry out banking and financial transactions having established a branch office in Nepal..

8 (vv) “Electronic transaction” means the business of accepting deposits, making payments and transferring funds through telephone, telex, computers or magnetic tapes or similar types of other electronic equipment; and this term also includes the transactions to be carried on through terminal, automated teller machines and cash dispensing machines, as well as those to be carried on through charge cards, debit or credit card. (ww) “Prospectus” means the prospectus to be published by 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 branch or representative office or liaison office or other office of a foreign bank or financial institution in Nepal. (yy) “Share” means the divided portion of share capital of a bank or financial institution. (zz) “Shareholder” means a person having ownership in a share of bank or financial institution. (aaa) “Director” means a member of the Board of Directors and the term also includes the Chairperson of the Board of Directors as well as an Alternate Director. (bbb) “Board of Directors” means the Board of Directors constituted pursuant to Section 14. (ccc) "Promoter" means a person who, having undertaken to subscribe at least one share, signs the Memorandum of Association and the Articles of Association in the capacity of Promoter for establishment of a bank or financial institution pursuant to this Act. (ddd) “Affiliated person” means a Director, official of bank or financial institution or his/her family member or any firm, company or institution having substantial ownership of such person or any person, firm, company or institution having substantial ownership in such firm, company or institution or beneficial owner with substantial ownership thereof..

9 (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 the situation in which a bank or financial institution initiates voluntary liquidation pursuant to Chapter 11. (ggg) “Creditor” means a person or a body corporate to whom/which a bank or financial institution has to pay and the term also includes a depositor and debenture-holder for the purpose of liquidation process. (hhh) "Hypothecation Loan" means the 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 concerned borrower. Chapter - 2 Provisions on Incorporation of Bank or Financial Institution 3. Incorporation of Bank or Financial Institution: (1) Any person, who is desirous of incorporating a bank or financial institution to carry on financial transactions according to this Act shall have to incorporate it by getting such bank or financial institution registered as a public limited company in accordance with the prevailing laws. Provided that the bank or financial institution which has already been incorporated and in operation during commencement of this Act does not require to be incorporated pursuant to this sub-Section. (2) The official authorized under the laws in force to register a company pursuant to Sub-Section (1) shall have to register the company subject to Section 4. 4. Prior-approval to be obtained to incorporate bank or financial institution : (1) The person or institution willing to incorporate a bank or financial institution under Section 3 shall, while submitting application for getting such bank or financial.

10 institution registered according to the prevailing laws, have to submit 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 applicants in the form as prescribed by the Rastra Bank, (e) A certified copy of the agreement, if any, made 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 for making of application pursuant to this Section, (g) Details as to whether or not the applicant of the proposed bank or financial institution is declared bankrupt in Nepal and abroad, whether or not he/she has borrowed any loan from any bank or financial institution, whether or not person has been blacklisted in any transaction with a bank or financial institution, if so, whether or not a period of three years is passed after having such blacklisting, (h) Self-declaration of the applicant stating that no action has been taken and no punishment has been imposed against the applicant in Nepal or abroad for being involved in cheating, fraud or criminal offence as per the prevailing laws, (i) Details as to whether or not action has been taken against the applicant in Nepal or abroad by any regulating or supervisory authority or whether or not license of the company or bank or financial institution in which he/she is associated with has been suspended, revoked or subjected to mandatory dismissal or is in the course of being so,.

11 (j) Details as to name and address and relationship of the members of family of applicant; significant 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 posts each of them holds, Provided that in case the applicant is a body corporate, details as to the person having substantial ownership or capacity in that body corporate, 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/insured, (m) Other details or documents as specified by Rastra Bank from time to time. (2) 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 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 person and of the member of their family:- (a) Subjected to regulatory actions of the Rastra Bank, (b) Punished in banking offence, (c) Punished in cheating, fraud, forgery,.

12 (d) Punished in the offence of money laundering and terrorist financing, (e) Punished in the offence of corruption, (f) Punished in the serious types of offences such as human trafficking, kidnapping, hostage, and rape. 5. Prior Approval to be obtained for Incorporation of Bank or Financial Institution on Foreign Investment:(1) Any foreign bank or financial institution shall, prior to incorporation of a bank or financial institution as a subsidiary company under this Act in joint venture with a body corporate registered in Nepal or a Nepali citizen or to maintain the share capital as specified by the Rastra Bank, have to submit the following documents and details as well along with the fee specified by the Rastra Bank while submitting an application pursuant to sub-Section (1) of Section 4:- (a) The Memorandum of Association, Articles of Association of foreign bank or financial institution and a copy of the certificate of incorporation of the bank or financial institution in the concerned country and capital structure thereof, (b) Copy of license of the foreign bank or financial institution obtained from concerned country for carrying on banking and financial transactions, (c) Details as to the principal place of business, (d) Certified copy of the audited balance-sheet and profit and loss account of latest three years of the foreign bank or financial institution, (e) Details as to 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 concerned country to open bank or financial institution in Nepal and authority granted by regulatory body of concerned country. (2) Rastra Bank may, if it finds 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 foreign bank or.

13 financial institution for incorporation of bank or financial institution in joint venture or within the prescribed share limit within one hundred twenty days after filing of the 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 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, the investment made by any foreign bank or financial institution or other foreign institution by getting approval pursuant to prevailing laws before 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 desires to open branch office to carry on banking and financial transaction or non-banking financial transaction within Nepal, prior approval of the Rastra Bank should be obtained before opening such branch office. (2) For purpose of Sub-Section (1), an application has to be submitted to the Rastra Bank along with the capital and fees as prescribed by the Rastra Bank. (3) While submitting application pursuant to Sub-Section (2), such foreign bank or financial institution shall have to 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 of 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 business activities of its branch of representative or liaison office of concerned foreign bank or financial institution in Nepal,.

14 (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 to be engaged in the proposed branch office of the foreign bank or financial institution. (4) The Rastra Bank may, If deems necessary to demand further documents or details while carrying out inquiry to the documents or details submitted pursuant to Sub-Section (3), demand required documents or details from concerned applicant. (5) The Rastra Bank may, if it deems appropriate to grant prior approval while carrying out inquiry of the 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 pursuant to Sub-Section (5), shall have to get registered as the branch office according to the prevailing laws relating to companies. (7) The branch office of the foreign bank or financial institution registered pursuant to Sub-Section (6) shall have to submit an application before 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 on baking and financial transaction in Nepal:- (a) Registration certificate of being registered according to the prevailing laws to carry on baking and financial transaction in Nepal as a branch office, (b) Letter of approval or consent granted by the Government or central bank or regulating agency according to the law of concerned country of the foreign bank or financial institution to open branch office of such bank or financial institution in Nepal,.

15 (c) Details of the discrepancy, if any, in any matter to be completed by the concerned foreign bank or financial institution under this Act after submission of application before the Rastra Bank for establishment of a branch office of the foreign bank or financial institution or after obtaining approval from the Rastra Bank, (d) Other information and documents demanded by the Rastra Bank. (8) The Rastra Bank may, if it deems appropriate upon carrying out inquiry over the application received pursuant to Sub-Section (7), grant approval to such branch office of foreign bank or financial institution for carrying on banking and financial transaction in Nepal within 90 days from the date of filing the application. (9) The Rastra Bank may, while granting approval pursuant to Sub-Section (8), prescribe necessary terms and conditions. (10) A bank or financial institution may open branch office outside of Nepal by obtaining approval of the Rastra Bank. (11) The Rastra Bank may frame necessary policy from time to time with regard to open branch office outside of Nepal pursuant to Sub-Section (10). 7. Prior Approval may be denied: (1) The Rastra Bank may deny to grant prior approval for incorporation of any bank or financial institution and for open branch office of the foreign bank or financial institution in following circumstances: (a) If the name 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 interests, religion, ethnicity or traditional belief, etc., (b) If the objective of the proposed bank or financial institution is contrary to the prevailing laws,.

16 (c) If incorporation of the proposed bank or financial institution does not seem to be technically appropriate, (d) If study of the feasibility study report, details and documents other infrastructures submitted by the proposed bank or financial institution does not provide a ground to believe that it may carry on financial transactions in a healthy and competitive manner, (e) If not all promoters of the proposed bank or financial institution have signed the Memorandum of Association and Articles of Association, also stating their names, address and number of shares subscribed by them, in the presence witness and the name and address of the witnesses have not been mentioned, (f) 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, (g) If it is found to be inconsistent with the policy relating to incorporation of bank or financial institution and licensing policy issued by the Rastra Bank, (h) If any condition as prescribed by the Rastra Bank has not been found to be fulfilled. (2) If the Rastra Bank denies granting prior approval to the proposed bank or financial institution for any of the reasons referred to above, information shall be given to the applicant stating reasons thereof. Chapter-3 Provisions Concerning Transactions of Securities 8. Prospectus: (1) A bank or financial institution shall, before public offering of its securities, have to get the prospectus registered at the Rastra Bank having obtained necessary approval concerning securities according to the prevailing laws..

17 (2) Unless such prospectus is registered pursuant to Sub-Section (1), the said bank or financial institution or anyone on behalf of the bank or financial institution shall not be allowed to publish prospectus of such bank or financial institution. (3) Notwithstanding anything contained in Sub-Section (1), unless the Rastra Bank receives a written notification of the approval from the Securities Board to register the prospectus, the Rastra Bank shall not register such prospectus. 9. Allotment of Shares: (1) The bank or financial institution shall set aside at least thirty percent share of its total issued capital for subscription by the general public. Explanation: For the purpose of this section, “general public” means natural person. (2) The shares allotted to general public pursuant to Sub-Section (1) shall be sold to the general public within the stipulated time. The shares that could not be sold in such a manner may be sold to other firm, company or institution. (3) The bank or financial institution may allot 0.5% shares, except that of the limit referred to in Sub-Section (1), to its employees. (4) The bank or financial institution may, if it desires, convert the shares to ordinary shares having fulfilled the process specified by the Rastra Bank subject not to be the share ownership of the promoter shares group less than 51 percent. Explanation: For the purpose of this Chapter,- (a) “Promoter shares group” means the promoter shares group as prescribed by the Rastra Bank. (b) “Ordinary shares group” means the shares groups other than the promoter shares group. (5) Notwithstanding anything contained in Sub-Section (1), the ratio of share ownership is not necessary in case of the bank or financial institution and.

18 infrastructure development bank to be incorporated under significant ownership of Government of Nepal. (6) The bank or financial institution to be incorporated in joint venture with a foreign bank or financial institution or other foreign institution or infrastructure development bank shall have to allot the shares to general public as specified by the Rastra Bank. (7) While call upon application from the general public for subscription of its shares, every bank or financial institution shall demand payment of hundred percent amount of the face value of its shares along with application. 10. Transactions of Securities: (1) The bank or financial institution shall, while issuing its securities for subscription to the general public, carry out the acts of sale, allotment and the act of exchange in accordance with the prevailing laws relating to securities. (2) The bank or financial institution shall submit a copy of an agreement entered into by it on the dealing of securities through any institution dealing in securities before the Rastra Bank, within seven days after the date of entering into such agreement. (3) The bank or financial institution shall, while issuing any type of debenture or financial instrument, have to obtain prior approval of the Rastra Bank. (4) The Rastra Bank ma, while granting approval pursuant to Sub-Section (3), specify required terms and conditions and it shall be the duty of the concerned bank or financial institution to abide by such terms and conditions. 11. Provision on Sale or Pledging of Securities: (1) The promoter of the bank or financial institution shall not be entitled to sell or pledge any share registered under his/her ownership for at least five years from the date of commencement of financial transactions..

19 (2) Notwithstanding anything contained in Sub-Section (1), in case of arising a special circumstance due to emergence of any obstruction or hindrance in the operation of the bank or financial institution or the promoter shareholder is included in the blacklist owing to transactions with another bank or financial institution, shares may be sold or brought amongst promoters by obtaining approval from the Rastra Bank. Explanation: For the purpose of this Section, “special circumstance” means failure of holding meeting of the Board of Directors due to lack of quorum for a consecutive period of three times or a situation of indecision because of disputes amongst Directors. (3) If the promoter of the bank or financial institution wishes to sell or pledge the shares held in his/her name after five years from the date of commencement of financial transactions by the bank or financial institution, his/her/its’ may sell or pledge such shares by obtaining approval from the Rastra Bank subject to belong such share under the promoter’s group. Provided that, approval of the Rastra Bank shall not be required while selling or pledging the shares by the promoter having subscribed the shares of less than two percent of the paid up capital. (4) Notwithstanding anything contained in Sub-Section (1) and Sub-Section (2) of Section 9, after completion of a period of ten years of transactions of bank or financial institution, the promoter shares may be converted into ordinary shares with approval of the Rastra Bank by giving due consideration to impact it causes on the capital market, banking and overall financial sector. (5) In case any company or body corporate has subscribed promoter shares, prior approval of the Rastra Bank shall be obtained before alteration of shareholders or sale or transfer the ownership of share among the shareholders having substantial ownership of such company or body corporate..

20 Provided that, approval of the Rastra Bank shall not be required while selling or mortgaging the shares by company or body corporate having subscribed the shares of less than two percent of the paid up capital of the bank or financial institution. 12. Prohibition on Transaction of Securities: (1) The Director, Chief Executive, Auditor, Company Secretary of the bank or financial institution or the person directly involved in management and account of a bank or financial institution shall not buy or sell, mortgage or cause to be mortgaged, transfer or transact or give or accept as donation the securities of the concerned bank or financial institution or of its subsidiary company in his/her name or in name of member of his/her family or a firm, company or institution under the control of such person or to any other person until he/she is in such position or until one year from the date of retirement from such position. Provided that this Sub-Section is not deemed to have hindered to buy and sell securities among Directors to Directors or Directors to Promoters with the approval of the Rastra Bank while issuing bonus shares, rights shares or the shares allotted for employee or issuing new shares, or while implementing a directive of the Rastra Bank or while selling entire share having in any bank or financial institution under own ownership by any Director or any corporate body having power to appoint Director or while merging or amalgamating bank or financial institutions in each other according to provisions made in Chapter-10 or while acquiring all assets or liabilities of one bank or financial institution by another bank or financial institution or while carrying out purchase or sale of securities among promoter directors or directors to directors with the approval of the Rastra Bank in case of emergence of any hurdle in operation of the bank or financial institution or while carrying out purchase or sale or transfer of shares during the process of reformative or settlement process of a problematic bank..

21 (2) In case anyone commits any act in contrary with Sub-Section (1), the concerned bank or financial institution shall have to forfeit such securities and sell them according to the process as prescribed by the Rastra Bank. 13. Prohibition on purchase by Bank or Financial Institution of its’ own Shares: (1) No bank or financial institution shall purchase its own shares or lend loan against security of its own shares. (2) Notwithstanding anything contained in Sub-Section (1), in the following circumstances, a bank or financial institution may, with the approval of the Rastra Bank, purchase its shares out of its free reserves available for being distributed as dividends not exceeding the percentage prescribed by the Rastra Bank: - (a) If the shares issued by the bank or financial institution are fully paid up, (b) If the shares issued by the bank or financial institution have already been listed in the securities market, (c) If the buy-back of own shares is authorized by the Articles of Association of the concerned bank or financial institution, (d) If a special resolution has been adopted at the General Meeting of the concerned bank or financial institution authorizing the buy-back of own share, (e) If the ratio of the debt owed by the bank or financial institution is not more than double of the capital and general reserve fund after such buy-back of shares, Explanation: For the purposes of this sub-Section, “debt” means all amounts of secured or unsecured debts borrowed by the bank or financial institution. (f) If the value of shares to be bought back by a bank or financial institution is not more than twenty percent of the total paid up capital and general reserve fund of that bank or financial institution,.