part 3

43 to convert bank or financial institution as the bank or financial institution of higher class, it may grant prior approval subject to the following terms and conditions:- (a) If it has the met the paid up capital requirement for a bank or financial institution of higher class as prescribed by the Rastra Bank, (b) If it has continuously maintained the capital fund adequacy according to the Rastra Bank directives for the last five years, it is in profit continuously for the last five years, and the average non- performing loans of the last five years is within the limits as prescribed by the Rastra Bank, (c) If preliminary expenses have already been written off, (d) If the shares to be issued publicly have been issued and already been allotted, (e) If the General Meeting has already passed the special resolution for conversion into upper class of the bank or financial institution, (f) If it has met all conditions as prescribed by the Rastra Bank. (3) The Rastra Bank shall issue the license of upper class bank or financial institution pursuant to this Act causing amendment to be made to the Memorandum of Association and Articles of Association of the bank or financial institution according to prevailing law having obtained prior approval pursuant to Sub-Section (2). 39. List to be Published: (1) The Rastra Bank shall publish a list of the bank or financial institutions carrying on banking and financial transactions every month in national level newspaper or through any other means. (2) The Rastra Bank may include the date of commencement of transaction, paid up capital, position of capital fund, total loans, status of non-performing loans and other details as deemed necessary by the Rastra Bank in list to be published pursuant to Sub-Section (1)..

44 40. Special Provision on Branch of Foreign Bank: (1) In case the Rastra Bank has granted license to an internationally classified foreign bank to carry on banking and financial transactions through a branch in Nepal, the branch so established in Nepal as per the prevailing law shall be deemed as equivalent to the bank or financial institution established under this Act and unless otherwise provided by this Act or Rules, Byelaws, order or directives framed under this Act, all other provisions shall be applicable equally even in case of such a branch. (2) The Rastra Bank may issue necessary directives with regard responsibility of the officials and employees taking responsibilities of the functions, duties, powers, responsibility, liability, assets, accounts, etc. of the branch of the foreign bank and carrying out such functions. (3) The branch of a foreign bank located in Nepal shall, while using its own assets in the course of bearing own responsibility, give first priority to its liability towards Nepal subject not to make adverse effect in any other legal provisions. (4) Notwithstanding anything contained elsewhere in this Act, branch of the foreign bank may carry on wholesale banking transactions. (5) Function and activities of branch office of foreign bank shall be as prescribed by the Rastra Bank. Chapter-6 Provisions on Capital, Capital Fund and Liquid Assets 41. Capital to be Maintained :(1) The minimum paid up capital of the bank or financial institutions shall be as prescribed by the Rastra Bank from time to time. (2) Banks or financial institution shall have to fulfill the minimum paid up capital pursuant to Sub-Section (1) within the time frame as set by the Rastra Bank..

45 (3) The Rastra Bank may make provisions that any person, firm, company or institution may only invest up to fifteen percent of the paid up capital of any one bank or financial institution. (4) While investing in other bank or financial institution by any person, firm, company or institution having investment in one bank or financial institution pursuant to Sub-Section (3), investment shall have to be made subject to be less than one percent of the paid up capital of said bank or financial institution. (5) Provisions concerning investment by any person, firm, company or institution in the paid up capital of any bank or financial institution to be established in foreign joint venture, "D" class financial institution and infrastructure development bank shall be as prescribed by the Rastra Bank. (6) The percentage of the share capital that may be invested by any person or institution in order to incorporate a bank or financial institution or invest in a bank or financial institution shall be as prescribed by the Rastra Bank from time to time. 42. Capital Fund: (1) A bank or financial institution shall have to maintain a capital fund in the ratio as prescribed by the Rastra Bank on the basis of its total assets or total risk-weighted assets. The Rastra Bank may, while prescribing such ratio, also prescribe the ratio of additional capital fund. (2) If any bank or financial institution fails to maintain the capital fund in accordance with Sub-Section (1), the Board of Directors of such bank or financial institution shall have to give information thereof to the Rastra Bank within one month. (3) The information given pursuant to Sub-Section (2) shall also be accompanied by, inter alia, the reasons for the failure to maintain the capital fund and the plans or programs prepared by the Board of Directors to increase the capital fund and restore it to the position as prescribed by the Nepal Rastra Bank..

46 (4) On receipt of the information referred to in Sub-Sections (2) and (3) , if the Rastra Bank deems the plan or program submitted by the Board of Directors reasonable, it may give directive to the concerned bank or financial institution to implement such plans or programs; and if any amendment or alteration is to be made in the proposed plans or programs it may give a direction to the concerned bank or financial institution to amend or alter such plan or programs stating the reasons for such amendment or alteration, and to implement the same. 43. Provisions on Possible Loss: A bank or financial institution shall have to make provisions of loan loss as prescribed by the Rastra Bank so as to be able to cover its potential risks concerning assets including loans and liabilities incurring from the off balance sheet transactions. 44. General Reserve Fund: (1) A bank or financial institution shall have to maintain a general reserve fund. At least twenty percent of the net profits of each fiscal year shall have to be added until the paid up capital is doubled and at least ten percent shall have to be deposited in every fiscal year thereafter in such reserve fund. (2) The amount credited to the reserve fund of a bank or financial institution under Sub-Section (1) may not be invested or transferred to any other headings without obtaining prior approval of the Rastra Bank. 45. Exchange Equalization Fund: (1) A bank or financial institution carrying on foreign exchange business shall make necessary accounts adjustments in the profit and loss account of the revaluation profits earned as a result of fluctuations in the exchange rates of foreign currencies, other than the Indian currency, every year at the end of the same fiscal year. While making such accounts adjustment in the profit and loss account, if revaluation earning has been made in any fiscal year, at least twenty five per cent of such profits shall be credited to the exchange equalization fund..

47 Provided that in the case of revaluation profit-loss resulting from fluctuation in the exchange rate of the Indian currency, it shall be as prescribed by the Rastra Bank. (2) No amount credited to the exchange equalization fund pursuant to Sub-Section (1) shall, without the approval of the Rastra Bank, be spent or transferred for any purpose other than the adjustment of loss resulting from the devaluation of foreign currencies. 46. Liquid Assets to be maintained: A bank or financial institution shall have to maintain liquid assets as prescribed by the Rastra Bank from time to time. 47. Declaration and Distribution of Dividends: (1) A bank or financial institution shall have to obtain approval of the Rastra Bank before declaring and distributing dividends. (2) No bank or financial institution shall be allowed to declare or distribute dividends to its shareholders until it recovers all of its preliminary expenses and the losses sustained by it until the previous year, capital, capital fund and possible loan loss provisioning as prescribed by the Rastra bank and for general reserve fund pursuant to Section 44 and until complete sale of shares to be allotted to general public. 48. Order may be issued to decrease Capital: Notwithstanding anything contained in the prevailing laws, the Rastra Bank may issue order to decrease the issued and paid up capital of a bank or financial institution. Chapter -7 Provisions on Operation of Banking and Financial Transactions 49. Bank or Financial Institution may carry on Banking and Financial Transactions: (1) The class “A” banks may carry on the following banking and financial transactions.

48 subject to this Act, Memorandum of Association and Articles of Association and limitation, conditions imposed and direction issued by the Rastra Bank:- (a) To accept deposits or to mobilize deposits through various financial instruments and make payment thereof with or without interest, (b) To accept deposits, making payments, having transactions, carry on intermediary services and transfer funds through various electronic instruments or devices, (c) To lend loan including hire-purchase, leasing, housing and overdrafts, (d) To lend loan on collateral of project and hypothecation and lending or causing to be lending loans in consortium financing having divided the collateral on pari passu according to mutual agreement entered into between one another, (e) To lend loans on the guarantee of foreign bank or financial institution, (f) To lend loans in the amount covered by the value of the movable or immovable assets which has already been mortgaged to it or lending loans on remortgage in the amount to be covered by the value of the movable or immovable assets which has already been mortgaged to other bank or financial institution, (g) To issue guarantees on behalf of its customers and getting executed necessary bonds with such customers in consideration thereof, obtaining security, and acquire their movable or immovable assets as collateral or on mortgage, or the assets of third persons as collateral and to acquire, accept the assets holding as security and to carry on other related transaction, (h) To make available of refinance from the Rastra Bank as may be necessary or to lend or borrow loans from other bank or financial institution, (i) To supply loan or managing loans from the amount received from Government of Nepal or other native or foreign agency for promotion of a project,.

49 (j) To Write-off credits subject to the prevailing credits write-off Byelaws, (k) To issue shares, debenture, debenture bond, etc. so on for the purpose of meeting the capital fund, (l) To issue, accept, pay, discount or purchase and sell letters of credit, bills of exchange, promissory notes, cheques, travelers cheques, drafts or other financial instruments, (m) To issue, accept and manage digital card or other instruments for electronic transactions and appointing agents for carrying out acts relating thereto, (n) To carry on foreign exchange business subject to the prevailing laws, (o) To carry on government transactions subject to the limits, terms and conditions or direction of the Rastra Bank, (p) To purchase, sell or accept treasury bills issued by Government of Nepal or bonds issued by the Rastra Bank, (q) To remit or transmit amount to different places within or outside Nepal through bills of exchange, cheques or other financial instruments; receiving remittance from abroad and to make payment thereof, (r) To take responsibility of and arranging for the sale or purchase of shares, debentures or securities; collecting interest, dividends etc. accruing from shares, debentures or securities; remitting or transmitting such interests or dividends to places within or outside Nepal; and arranging safe deposit vaults for customers acting as a commission agent of its customers, (s) To carry on off-balance sheet transactions, (t) To disburse credits upto the amount as prescribed by the Rastra Bank against individual or collective guarantee for the economic upliftment of the peoples from deprived sector, low-income families, victims of natural calamities and inhabitants in any area of the country, (u) To exchange details, information or notices on debtors or customers who have obtained credits from it or other banks or financial.

50 institutions with the Rastra Bank or any other bank or financial institutions, (v) To buy and sell of gold and silver bullions, (w) To conduct, or causing to be conducted, study, research and survey work relating to the establishment, operation and evaluation of projects, and providing training, consultancy and other information, (x) To manage properly or sell its assets of every type to come under its ownership according to this Act and the prevailing laws, (y) To give guarantee with consent of the parties involved on matters of payment to be made or values to be recovered for performance of any act between two or more persons, subject to the prevailing laws, (z) To perform other functions as may be prescribed by the Rastra Bank. (2) The Class “B” financial institution may carry on the following banking and financial transactions, in addition to banking and financial transactions as referred to in clauses (a), (b), (c), (f), (h), (i), (j), (k), (n), (p), (r), (s), (t), (u) and (x) of Sub- Section (1) subject to this Act, the Memorandum of Association and Articles of Association and limitation and conditions imposed and directives issued by the Rastra Bank:- (a) To lend credit in collateral of project, to make or cause to be made arrangements for jointly lending credits on the basis of consortium financing in collaboration with other bank or financial institutions in accordance with the mutual agreement entered into for the division of the collateral (pari passu) (b) To issue guarantees on behalf of its customers and to cause to be executed necessary bonds with such customers, to acquire their movable or immovable assets as collateral or on mortgage, or the assets of third persons as collateral in consideration thereof, (c) To issue, accept, make payment, discount or purchase and sell bills of exchange, promissory notes, cheques, travelers cheques, drafts, (d) To accept loans in mortgage of its movable and immovable assets,.

51 (e) To carry on transactions of letters of credit and remittance with prior approval of Rastra Bank, (f) To take custody of and arrange for the sale or purchase of shares, debentures or securities, to collect interest, dividends etc. accruing from shares, debentures or securities, to make arrangement of safe deposit vaults for customers acting as a commission agent of its customers, (g) To carry on transactions of transfer of amount within Nepal, (h) To carry on, or cause to be carry on study, research and survey work relating to the project establishment and operation as well as banking, account, property, loan evaluation and to provide training, consultancy and other services and to provide information thereof, (i) To carry out other functions as may be prescribed by the Rastra Bank. (3) Class “C” financial institution may carry on the following financial transactions, in addition to the financial transactions referred to in clauses (a), (b), (f), (h), (j), (k), (p), (r), (t) (u) and (x) of Sub-Section (1) subject to this Act and the Memorandum of Association and Articles of Association, the limitation and conditions imposed and directives issued by the Rastra Bank: - (a) To disburse credit for hire-purchase, leasing, housing loans, (b) To make arrangements for jointly disbursing credits on the basis of consortium financing in collaboration with other bank or financial institutions in accordance with the mutual agreement entered into for the division of the collateral pari passu, (c) To accept loans having mortgaged its movable and immovable assets, (d) To properly manage its assets, to sell or rent or lease them out, (e) To issue, accept, make payment, discount or purchas and sell bills of exchange, promissory notes, cheques, travelers cheques or other financial instruments, (f) To carry on the transaction of foreign currencies by obtaining approval from the Rastra Bank,.

52 (g) To disburse installment or hire-purchase loan to any person, firm, company or institution for motor vehicles, machinery, tools, equipment, durable household goods or similar other movable property, (h) To provide leasing finance to any person, firm, company or institution to hire vehicle, machines, tools or instruments, household durable goods, or similar types of movable assets or to accept or provide such goods on hire, (j) To issue guarantees on behalf of its customers and to cause to be executed necessary bonds with such customers, to acquire their movable or immovable assets as collateral or on mortgage, or the assets of third persons as collateral in consideration thereof, (i) To sell off or leasing out whole or part of its assets, (j) To prescribe prices of goods on consent with the finance company and seller in case any goods procured has to be sold to other purchaser on current price or deferred price, (k) To carry out other functions as may be prescribed by the Rastra Bank. (4) The Class “D” financial institution may carry on the following banking and financial transactions subject to this Act, Memorandum of Association and Articles of Association and limitation, conditions imposed and direction issued by the Rastra Bank: (a) To Disburse micro-credit, with or without any movable or immovable property as the collateral or security, for operating any micro-enterprise prescribed by the Rastra Bank to any project, any group or a member thereof which/who have regularly saved for the period and maintained the prescribed saving, (b) To accept loans or grants from any bank or financial institution or native or foreign organization or institution, and use such loans or grants for the supply of micro-credit or for making the same effective,.

53 Provided that approval of the Rastra Bank shall be obtained prior to obtaining loans or grants from any foreign organization. (c) Prior to disbursing micro-credits, evaluating the schemes for which micro-credits have been requested and determining whether or not they are feasible, (d) To provide necessary services and consultation to groups with regard to mobilization of micro finance, (e) To carry out necessary actions for recovery of the micro credits on time, (f) To accept deposits and refund such deposits subject to the limit prescribed by the Rastra Bank by getting approval of the Rastra Bank, (g) To issue shares, debentures, bonds, etc. for the purpose of meeting the capital fund requirements, (h) To exchange information or notices on debtors or customers who have obtained credit or any kind of facility from it and other bank or financial institutions with the Rastra Bank or any other bank or financial institutions particulars of, (i) To carry out such other functions as may be prescribed by the Rastra Bank. (5) The infrastructure development banks may carry on the following transactions subject to this Act, Memorandum of Association, Articles of Association, and limits, conditions and directives of the Rastra Bank:- (a) To Disburse loans and financing in shares in projects relating to infrastructure development, (b) To Finance in securities of the companies operating projects relating to infrastructure development, (c) To open letters of credits and issue guarantees for purchase, sale or supply or installation of machineries, equipment and tools.

54 required for construction and operation of projects relating to infrastructure development, (d) To issue financial instruments in national or foreign currencies with approval of the Rastra Bank for collecting fund required for investment in projects concerning infrastructure development and to acquire loan to that effect, (e) To mobilize resources by accepting long term deposits or issuing debenture, (f) To carry on leasing transactions with approval of the Rastra Bank, (g) To provide loans and facilities for projects by accepting guarantee of foreign banks and financial institutions, (h) To carry out other acts as prescribed by the Rastra Bank. 50. Acts not to be carried out by Bank or Financial Institution: (1) A bank or financial institution shall not have to carry out or cause to be carried out any of the following acts:- (a) To purchase and sell goods with an objective of business and to purchase immovable land and to construct building except those are necessary for its own purposes, (b) To disburse credit against security of one’s own shares, (c) To provide any type of credit facility to the Directors, person having subscribed one percent or more than that of the paid up capital, Chief Executive, or a member of family of such persons, or the firm, company or organization having significant ownership or financial interest in any person, firm, company or organization having authority to nominate or appoint Director or managing agent, (d) To provide any type of credit or facility exceeding per customer limit prescribed by the Rastra Bank from its capital fund to the single customer, company, companies or partnership firms of the same group and relevant person,.

55 (e) To provide any type of credits to any person, firm, company or institution on the guarantee of promoters, Directors, or Chief Executive, (f) To make investment in the securities of the bank or financial institutions of class “A”, “B” and “C”, classified by the Rastra Bank, (g) To invest the amount more than the limit as prescribed by the Rastra Bank in share capital of other institution, (h) To create any type of monopoly or other type of restrictive practices in banking and financial transactions in collusion of banks or financial institutions, (i) To commit in any act to create an artificial hurdles in competitive environment in financial sectors with a intention to get undue advantage, (j) To carry out any other functions which are prescribed by the Rastra Bank as the functions not be carried out by a bank or financial institutions. (2) Notwithstanding anything contained elsewhere in this Act, there shall be no restriction to carry on own banking and financial transaction or to provide housing or other facilities for its own employees according to prevailing Personnel Byelaws of bank or financial institution, to disburse any credit against the collateral security of the bond issued by Government of Nepal or Rastra Bank, amount deposited in any account or fixed deposits receipts or to make available credit and credit card facilities up to the prescribed limit to promoters, Directors, Chief Executive or shareholders having subscribed more than one percent of shares against the collateral security of their own fixed deposit receipts, and the bonds issued by Government of Nepal or the Rastra Bank. 51. Provisions concerning Subsidiary Company: (1) A bank or financial institution may incorporate subsidiary company with the approval from the Rastra Bank..

56 (2) The Rastra Bank may prescribe necessary terms and conditions while granting approval pursuant to Sub-Section (1). 52. Prohibition on carrying out transactions with relevant persons: No bank or financial institution shall be allowed to provide any type of loan or facilities to the relevant persons. 53. Information of Suspicious Transaction to be furnished: A bank or financial institution shall have to take actions as per the provision mentioned in the prevailing law preventing money laundering and terrorist financing with regard to informing about suspicious transactions with its account holder or customer having had transactions with it. 54. Rastra Bank may issue Directive: The Rastra Bank may issue necessary directives with regard to procedural aspects and other matters to be followed by the bank or financial institutions while carrying out activities under this Chapter. Chapter -8 Provisions on Disbursement and Recovery of Credits 55. Provisions on Disbursement of Credit: (1) A bank or financial institution shall have to disburse credit only after disclosing the purpose subject to the directives issued by the Rastra Bank from time to time and the credit policy as determined by the Board of Directors. (2) While disbursing credit, a bank or financial institution shall have to obtain any movable or immovable property acceptable to it as a collateral security or an appropriate guarantee so as to safeguard interests of its own and of the depositors. (3) A bank or financial institution shall have to write to the concerned office to withhold any property which it has taken up as collateral security against a.

57 credit pursuant to this Section in the name of the bank or financial institution so that such property may not be registered in name of, or transferred to, any person in any manner whatsoever. (4) When requested in writing to withhold, registration or transmission of property pursuant to Sub-Section (3), the concerned office shall have to withhold the registration or transmission thereof accordingly. (5) In case the Rastra Bank gives direction to disburse credits for such class and in such area as prioritized for the economic upliftment of the persons belonging to a low-income group and indigent class and of the inhabitants residing in any specific geographical region, to banks or financial institutions shall have to disburse credits according to the direction . (6) The terms and conditions, repayment schedule, and interests of the credits borrowed by the borrower shall be according to the deeds or agreement executed between the bank or financial institution and the borrower. (7) The bank or financial institution shall have to collect necessary details of identity documents of the borrower, guarantor or, if the borrower is a firm, company or an institution, the directors, the shareholders having subscribed the shares in numbers more than the percent prescribed by the Rasta Bank or partners or owners in any manner thereof; the members of families of all of the above persons and if any of them is a beneficiary of any institution, and evidence of identity that may be required while taking legal actions. (8) While disbursing any credit by a bank or financial institution to anyone, the regular installment of the credit, interests, penal interests and repayment schedule shall have to be clearly specified in deed or contract and information thereof must be given to the borrower and guarantor..

58 (9) A borrower may request for details of the payable or paid principal, interests, penal interests, and other fees and the deed or contract executed in the course of availing the credit and the bank or financial institution shall have to make such details available. 56. Monitoring as to Utilization of Credit Amount: A bank or financial institution shall have to carry out regular monitoring by preparing a monitoring schedule as to whether or not the borrower has utilized the credit for the purpose for which it has been disbursed. 57. Provisions on Recovery of Credit: (1) Notwithstanding anything contained in the deed of loan or in the prevailing Nepal law, the bank or financial institution may recover its principal and interests having sold by auction the assets taken or put as mortgaged by the borrower in the name of the bank or financial institution, if the borrower fails to abide by the terms of the credit as mentioned in the deed or agreement or any terms and covenants made with a bank or financial institution or fails to repay credit to the bank or financial institution within the time-limit stipulated in the deed, or if the bank or financial institution is found, through the monitoring conducted pursuant to Section 56, that it has misused the credit by using it for the purpose other than the purpose for which it was disbursed. (2) Notwithstanding anything contained in the prevailing law, in case the borrower gives off the title in any manner whatsoever over the assets mortgaged collateral security or the value of assets mortgaged as collateral security to the bank or financial institution is decreased, the bank or financial institution may ask such borrower to place more assets as collateral security within the time limit specified by it and the borrower shall have to place additional collateral security within the time-limit prescribed by the bank or financial institution. (3) In case the borrower fails to place more assets as collateral within the time limit pursuant to Sub-Section (2) or the principal and interests could not be recovered from the collateral security so mortgaged, the bank or financial.

59 institution may recover its principal and interests from the movable or immovable assets under the ownership or title of the borrower according to the prevailing laws. (4) In case any amount remains after deducting the amount realized from auction sale or other provisions under this Section from the amount of expenses and the amount of principal and interests of the bank or financial institution, such remaining amount shall have to be refunded to the concerned borrower. (5) The bank or financial institution shall write to the concerned office to register or transfer the ownership of the assets so auctioned as per this Section in the name of the person accepting the auction in accordance with the prevailing law. (6) In case the bank or financial institution writes for registering or transferring the ownership of the assets pursuant to Sub-Section (5), notwithstanding anything contained in the prevailing laws, the concerned office shall have to register or transfer the ownership of the assets as requested. (7) In case no one accepts the movable or immovable assets while carrying out auction by the bank or financial institution under this Section, the bank or financial institution shall take into its ownership such assets as prescribed. (8) The bank or financial institution shall write to the concerned office to register or transfer the ownership of the assets it has taken into its ownership pursuant to Sub-Section (7). In case such request is received, the concerned office shall, notwithstanding anything contained in the prevailing laws, register or transfer the ownership of the assets in the name of the concerned bank or financial institution. (9) In case the then owner denies to, or obstructs in, possessing the property accepted by any person or a bank or financial institution and the party accepting the auction who has the right to enjoy the assets according to laws, the concerned body.

60 of Government of Nepal shall take action to cause to possess of said property as per the prevailing law. (10) The licensed institution shall not be entitled to suspend the recovery process of the credit written off subject to the prevailing Credit Write-off Byelaws. (11) In case a borrower does not repay the credit from a bank or financial institution and the interests accrued thereto and penal interests within the time limit stipulated in the deed of the credit or the contract, the bank or financial institution shall have to write to the Credit Information Bureau Limited to blacklist such borrower according to the prevailing laws. (12) In case the credit could not be recovered even after taking actions against the borrower under this Section, the bank or financial institution may, for the purpose of recovering such credit amount, take actions for recovery of the credits according to the prevailing laws including freezing of any assets of the borrower located in a foreign country. (13) In case the credit could not be recovered even after taking all actions under this Section, the concerned bank or financial institution may request the Rastra Bank for making necessary provisions to withhold or confiscate the passport/s of the concerned borrowers and to deprive the concerned borrower from availing the services to be made available by the state. Upon receipt of such request, Rastra Bank shall have to forward the request to Government of Nepal for necessary actions along with its opinion. (14) The taking actions by any bank or financial institution against anyone in the course of recovery of credits shall not be deemed to have prevented to take legal actions for any offence as per the prevailing laws..

61 Chapter-9 Provisions on Accounts, Records, Details and Reporting 58. Accounts to be maintained accurately: (1) Bank or financial institution shall have to maintain its accounts, books, records precisely and correctly. (2) The accounts to be maintained pursuant to Sub-Section (1) shall have to be maintained according to recognized principle of double entry book keeping system reflecting the exact status of transactions of the bank or financial institution. (3) Without prejudice to the generality of Sub-Section (1) and (2), licensed branch or office of a foreign bank or financial institution shall have to prepare and maintain financial statements including separate accounts, books and records of its assets, liabilities, income and expenses and profit and loss accounts. (4) Unless otherwise approved by the Rastra Bank, the accounts and other statements to be maintained pursuant to Sub-Section (1) shall have to be maintained at its central office. 59. Balance-sheet, Profit and Loss Accounts to be prepared: (1) Bank or financial institution shall have to prepare and maintain its balance-sheet, profit and loss account and cash flow statement and other statements in the formats as prescribed by the Rastra Bank. (2) Bank or financial institution shall have to submit balance-sheet, profit and loss account to the Rastra Bank within three months of the completion of every fiscal year and details of such balance-sheet and profit and loss account shall have to be published for information of general public as prescribed by the Rastra Bank. A bank or financial institution shall have to publish the audited balance-sheet of every Fiscal Year and profit and loss accounts of the transactions within and outside Nepal as in the prescribed formats within nine months of next fiscal year..

62 (3) If a bank or financial institution is having its subsidiary company, the balance-sheet and profit and loss accounts and status of transaction of business of the subsidiary company and parent company must be separately stated and stated in integrated manner as well. (4) The format, contents, methods of certification and details of the matters to be made public in the balance-sheet and profit and loss accounts to be prepared by bank or financial institutions under this Chapter shall be as prescribed or directed by the Rastra Bank. (5) In case the Rastra Bank has suspicion that any details publicized by a bank or financial institution pursuant to Sub-Section (2) is erroneous, incomplete, misleading or false, the Rastra Bank may require by a notification in writing to the concerned bank or financial institution to do as follows:- (a) To publicize the matters escaped or not stated, or (b) To re-publicize the details which are erroneous, incomplete, misleading or false, or (c) To publish by making correction of the matters required by directives of the Rastra Bank. 60. Audit Committee: (1) The Board of Directors of a bank or financial institution shall have to form an Audit Committee comprising of three members under the headship of one non-executive Director. (2) The Chairperson of the bank or financial institution, convener of the sub- committee and the Chief Executive shall not be allowed to act in the audit committee referred to in Sub-Section (1). (3) Members of the committee referred to in Sub-Section (1) shall not be entitled to be engaged in collecting deposits, disbursing credits, investing in securities, and making decisions in any daily transaction that requires for making expenses out of the approved budget..

63 (4) Except in cases of meeting called by the Board of Directors, meeting of the Audit Committee shall normally be held once in three months. (5) Procedures of the meeting of the Audit Committee shall be as prescribed the committee itself. 61. Functions, Duties and Powers of the Audit Committee: Functions, duties and powers of the Audit Committee shall be as follows:- (a) To ascertain whether or not the accounts, budget and internal auditing procedures, internal control mechanism of bank and financial institution are appropriate and if they are appropriate, to carry out monitoring and supervision, whether or not they are complied with, (b) To cause to carry out internal auditing of the accounts and books of records of the bank or financial institution and to ascertain that whether or not such documents are prepared according to the prevailing law, regulation and directives of the Rastra Bank, (c) To conduct or to cause to conduct auditing of management and operation, managerial and work performance of the bank or financial institution to be assured that the laws in force in the bank or financial institution are fully complied with, (d) To carryout monitoring that whether or not actions are being taken according to the Act or Rules enacted under the Act, Byelaws, policies or given directives in the bank or financial institution and to submit the report thereof to the Board of Directors, (e) To recommend names of three auditors for appointment of the external auditor, (f) To furnish opinion on the subjects as required by the Board of Directors..