KATHMANDU, March 22: The government has introduced the concept of digital currency for the first time, paving the way for its legal recognition.

The concept of digital currency has been brought forward in the bill prepared to amend the Banks and Financial Institutions Act (BAFIA) 2073.

The bill defines digital currency as a currency issued by the Nepal Rastra Bank (NRB).

Furthermore, the bill introduces the concept of digital banks, allowing the NRB to grant licenses to such institutions. The bill, approved by the Council of Ministers on February 8, has been presented in parliament.

The proposed legislation grants digital banks the authority to conduct banking and financial transactions, including accepting deposits and granting loans, as specified by the NRB.

Mortgage defined for the first time

Subjects like mortgage, security, significant ownership have been further explained and defined in the bill. The bill proposes reducing the shares of significant ownership. It has proposed to reduce the limit of such shares from 2 percent to 1 percent.

As per the existing laws, a person or an organization, alone or jointly with other individuals or organizations, can influence the management of a financial institution by taking a share of more than 2 percent of the paid-up capital of a bank or financial institution. The proposed amendment suggests considering that those holding shares exceeding 1 percent can also influence the management.

The bill has defined mortgage for the first time. Now collateral means the property provided to the bank by the borrower to secure the loan taken from the bank or financial institution.

Security and mortgage protection are also explained in the bill. In order to secure the loan from the bank or financial institution, it is necessary to understand the movable and immovable assets that have been secured, withheld, mortgaged, or pledged in the name of the bank, as well as machinery, vehicles, intangible assets, projects, etc.

The definition of family has been expanded. At present, the definition of family includes parents, brothers, brothers-in-law, etc. Now, it is proposed to include mother-in-law in the case of married women.

The bill proposes that directors, executive heads, auditors, company secretaries of banks and financial institutions cannot buy and sell shares of banks and financial institutions even after one year of retirement. Doing so will result in confiscation of the shares.

One cannot be a director of more than one organization

Currently, directors of banks and financial institutions can also be directors of infrastructure development banks. After the approval of the bill, such persons cannot be the director of more than one organization.

The proposed amendment stipulates a fixed tenure for directors. An elected or nominated director would be limited to serving a maximum of two terms. Currently, there is a provision allowing for unlimited re-appointment.

Loans are not allowed for those who own more than 10 percent of shares

Loans are strictly prohibited for individuals who own more than 10 percent of shares in banks and financial institutions. However, the option remains open to issue a guarantee with a 100 percent cash margin.

The bill also mandates the Chief Executive Officer to regularly inform the Board of Directors about policies, circulars, instructions, and information issued by the NRB.

To enhance the effectiveness of debt recovery, stringent provisions have been proposed for individual guarantors alongside debtors. Now, their passport can be confiscated, and further legal actions can be pursued.

Provisions have been proposed to prevent the misuse of concessional loans. In case of such misuse, all accrued interest and penalties will now be collected.

 
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