NRB DIRECTIVES

(issued to A, B and C class licensed institutions)

Banks & Financial Institutions Regulation

Department
Nepal Rastra Bank

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Regulators

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NRB Regulation - Sources of regulation
NRB Act, 2058
BAFIA, 2063
Company Act, 2063
Foreign Exchange Regulation Act
Other prevailing laws and regulations
International Best Practices and Basel Capital Accord I &
II
International conventions, Policies, and Guidelines
Orders and correspondence of other regulatory
authorities
Monetary Policy Statement
Government & NRB’s decisions

10/11/23 3
 Why Regulatory Compliance?
• Duty of supervisory authority
• Strong financial environment
• Enhancing financial/banking sector stability
• Cost of supervision and poor supervision and
compliance
• Corporate governance, market discipline and
management oversight

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 Objectives of NRB

• Macro Economic Policy

• Stability and liquidity
• Payments system
• Regulation and Supervision
• Enhancing public credibility.

10/11/23 5
 Supervision Approaches

NRB adopts two approaches to monitor and

supervise:

on-site inspection
(CAMELS Ratings prepare at on-site inspection)
and,
off-site surveillance
(CAELS Ratings prepare at off-site inspection)

10/11/23 SBBR 6
Supervision Modalities

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 Directive 1
Maintenance of Minimum Capital Fund

Institution Required Capital Fund on the basis of

weighted risk assets (in percentage)

Core Capital Capital Fund

A Class (Under 6.00 10.00
Basel II)
B and C Class 5.50 11.00

D Class 4.00 8.00

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 Items under Core Capital
1. Paid Up-Capital
2. Proposed Bonus Share
3. Share Premium
4. Irredeemable Preference Share
5. General Reserve Fund
6. Cumulative Profit & Loss
7. Capital Redemption Reserve
8. Capital Adjustment Fund
9. Other Free Reserve

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 Items to be deducted from Core Capital

1. Goodwill
2. Fictitious Assets-VRS, Prel. Exp, share issue exp and
deferred revenue exp. (other than R&D, IT Exp., Patent,
copyrights, trademarks and leasehold developments)
3. Excess Investment than Prescribed by NRB (Dir.8/068- 3(4))
4. Investment in equity of lic. Inst. By NRB (If any waive)
5. Investment in Shares(and Securities) of the companies
having financial interest.
6. Prohibited Lending according to prevailing Acts
7. Fixed assets purchased violating the directives of NRB.

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 Supplementary Capital

1. GLLP
2. Exchange Equalization Reserve
3. Assets Revaluation Reserve-50%(upto 2%
of Supplementary Capital)
4. Hybrid Capital Instruments
5. Unsecured Subordinated Term debts (upto
50% of tier 1)
6. Investment Equalization Reserve

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 Total Capital Fund is defined as the sum of Core &
Supplementary Capitals

Total Risk Weighted Assets

a. On-Balance Sheet Risk-Weighted Assets
b. Off-Balance Sheet Risk-Weighted Assets

Total Risk Weighted Assets Under BASEL II

a. Risk Weight Exposure for Credit Risk
b. Risk Weight Exposure for operational Risk
c. Risk Weight Exposure for Market Risk

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 In Existing System ( Except A Class Institution)

On Balance Item 0% risk weight

• Cash Balance
• Gold
• Balance with NRB
• Investment in Govt. Securities
• Investment in NRB Bonds
• Fully secured loan against own FDR
• Fully secured loan against Govt. Securities
• Accrued interest on Govt. Securities etc.

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 On Balance Assets with Risk Weight 20%

1. Balance with domestic Bank & Fin. Institution

2. Fully Secured loan against FDR of other Banks
3. Balance with foreign Banks
4. Money at Call
5. Loan against the G’tee of internationally
rated/ foreign banks
6. Other Investments with internationally rated/
foreign banks
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 On Balance Assets with Risk Weight 100%

1. Investments in Shares, Debentures and Bonds

2. Other Investments
3. Loans, Advances and BP/Discounted
4. Fixed Assets
5. All Other Assets(Except Advance Income tax)
6. Real Estate/Residential Housing loan to the
extent of above limit. (150% Risk weight)

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 Risk Weightage on Off-Balance Items
Particulars Risk Weighted %
Bills Collection 0
Forward Foreign Exchange Contract 10
LC with Maturity of less than 6 months 20
G’tees provided against counter G’tee of Int. rated foreign Bank 20
LC with Maturity of more than 6 months 50
Bid Bonds, Performance Bonds, Underwriting Commitment 50
Loan Sale with recourse 50
Advance Payment G’tee, Financial G’tee, Other G’tee 100
Irrevocable loan commitment 100
Contingent Liabilities in respect of Income tax 100
All other Contingent Liabilities 100
Unpaid Guarantee Claims 200

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 Basel II : Segregation of the
Exposure(For A class)
• Under Simplified Standardized approach, Exposures are
sub classified into following 11 categories and risk
weighted accordingly.
 Claims on government and central banks.
 Claims on other official entities.
 Claims on banks
 Claims on corporate & securities firm.
 Claims on regulatory retail portfolios.
 Claims secured by residential properties.
 Claims secured by commercial real state
 Past due claims.
 High-risk claims
 Other assets
 Off-balance sheet items.

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Pillar II and III

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Basel II : For A class

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 Capital Adequacy Ratios(CAR)
Core Capital+ Supplementary Capital
Capital Fund Ratio= *100
Total Risk Weighted Assets#

Core Capital
Core Capital Ratio = *100
Total Risk Weighted Assets#

# Total of on-balance sheet & off-balance sheet risk weighted items

 Reporting Requirement:
 Form no 1 and 2 (B, C and D)
 Capital Adequacy Framework 2007 (updated July 2008) for A

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 In case of Shortfall in Capital Adequacy
PCA Implemented: Different triggers are
enforced on Non compliance

1. Suspension of declaration or distribution of dividend

(including Bonus Shares)
2. Suspension of opening new branch
3. Suspension of access to refinancing of NRB
4. Restriction of lending activities
5. Restriction on acceptance of deposits
6. Initiation of any other actions by exercising the authority
under SECTION 100 of NRB Act.
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Basel III

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 Basel III
Transition Period
( Mid July)
2015 2016 2017 2018 2019
Minimum Common Equity Capital Ratio
4.00% 4.50% 4.50% 4.50% 4.50%
Capital Conservation Buffer 1.00% 1.25% 1.50% 2.00% 2.50%
Minimum common equity plus capital conservation
buffer 5.00% 5.75% 6.00% 6.50% 7.00%
Minimum Tier 1 Capital
6.00% 6.00% 6.00% 6.00% 6.00%
(Excluding conservation buffer)
Minimum Total Capital
10.00% 9.75% 9.50% 9.00% 8.50%
Excluding conservation buffer)
Minimum Total Capital (including conservation
buffer ) 11.00% 11.00% 11.00% 11.00% 11.00%

Introduce minimum
Counter Cyclical Buffers 0-2.5% 0-2.5% 0-2.5% 0-2.5%
standard
Introduce minimum Offsite Monitoring Migration to
Leverage Ratio
standard 4.00% Pillar 1

Liquidity coverage ratio Review Existing Framework LCR 100% LCR 100% LCR 100%

Observation Introduce
Net stable funding ratio and Parallel Run minimum Implemented
standard

SIFI Measures
NRB shall issue the regulation.
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 Directive 2

Loan Classification and

Provisioning

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 Classification of Loan & Advances

Category Past Dues

1. Pass 0-3 Months
2. Watch List 0-3 Months
3. Substandard 3-6 Months
4. Doubtful 6-12 Months
5. Loss >1Year

Performing Loan- Pass and Watch list Loan

Non Performing Loan- Other than Pass Category

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 Rescheduling & Restructuring of Loan
Licensed Institution shall Reschedule or Restructure loans if they are
confident of following points and upon receipt of a written Plan of
Action from the borrower

1. Evidence of existing of adequate loan documentations and existence

of collateral

2. If the licensed Institution’s are confident that the Rescheduled &

Restructured loan will be recovered

3. At least 25 percent of total accrued interest up to the date of

Rescheduling or Restructuring should have been collected (12% for
sick industries according to recommended by Committee)

4. Rescheduling and Restructuring is not allowed in case of Margin

Lending.
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 Loan Loss Provisioning
Classification of Loan Loan Loss Provision

Pass 1Percent (GLLP)

Watch List 5 Percent (GLLP)
Substandard 25 Percent (SLLP)
Doubtful 50 Percent (SLLP)
Loss 100 Percent (SLLP)
 In case of Rescheduled & Restructured loans (from pass categories)
minimum of 12.50% loan loss provision should be provided.
 In case of insured loan LLP is only 25% of the above mentioned
provisioning rate .

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 In case of Personal G’tee Loans

Where the loan is extended only against personal G’tee, a

statement of the assets not claimable by any other, shall
be obtained.

An additional provision by 20 percent point shall also be

provided. (But this additional provision is not required in
Deprived sector Lending and education loan)

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 Adjustment in Provisioning
If the loan is fully written off
If the loan is repaid in installment or
partially, upto the extend of repaid amount
If the payment of interest & principal of
Rescheduled & Restructured loan is regular
upto 2 years
If loan settled

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 Other provisions
•NBA -100% provisioning requirement.
•Credit Purchase/Repurchase and take over – Capital Inadequate banks can’t,
without approval of NRB.
•Conditions for Swap: interest Rate, Capital Adequacy, Repurchase not
permitted at last month of f/y, Bank’s CPG.
•Loan Against FDR: Own FDR, No renewal for Other’s FDR(incase of loan to
cooperatives), Coupon Rate
•IPO
•Lending not allowed for IPO (lending only, unsubscribed within seven
days, 50% margin)
•If Issue manager is subsidiary of licensed inst. Then not allowed to lend.
• Pass or Bad.
• Margin Lending (limit of core capital)
•Average price of 180 days or market price whichever is less,
•Security can’t be revalued.
•Can be renewed on all interest paid.
• Restrction on lending against the Shares of the co. having negative
networth, delisted from NEPSE, Unaudited since last one year.
•Bank Guarantee Claim; within 7 days, otherwise 200% Risk Weight

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 Directive 3
Single Obligors Limit (SOL)

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 NRB guidelines on Limits
 SOL - 25% of Core Capital
 30% in the sectors like Export, Employment &
Output Generating Activities & SMEs
 50 % on Hydro, cable car and transmission
line
 The Board also has to decide whether they
wish to continue the exposure in excess of
100% of core capital on an annual basis

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 Constituents of a Group
1. Both companies where one company holds at least 25% of
another company.
2. Individual, Directors, Shareholders, Partners, Proprietors
and members of their undivided family.
3. Companies where persons as stated in 2. hold more than
25% stake
4. Companies whose management is controlled by virtue of
holding a position of chairman, Chief Executive or the
authority to nominate more than 25% of the Board of
directors.
5. Companies and individuals where individuals as stated in 2 .
have provided guarantee to.

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 Waiver in Single Obligor Limits
• NOC, NFC and AIC.
• Loans secured by Fixed Deposits, Govt. and
NRB Bond, unconditional guarantee of
Multilateral Development Banks (IMF, MDB
etc.) and Internationally Rated Banks (Top
1000 Banks as per Banker of July)

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 Lending in excess of SOL

• If exceed then ???- create 100% loan loss

provision in the excess amount.
• Sectoral Limit 40% of total loan. (Sector as
stated in form no 3)

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 Real Estate Loans
• 60% of Fair Market Value, for Loan against the
security of real estate properties. (2/3 for
residential Real Estate)
• Real Estate loan (Res., com. complex etc.) 25%
of Total Loan & Out of this 10% (Other real
estate- land purchase and plotting)
• No renewal and restructuring for the loan
exceeding above limits.
• 150% Risk Weights for the exceeded limit.

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 Directive No-4

Accounting Policies and

Financial Statements

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 Guidelines
 Fiscal Year  Approval for publish
 Statutory Form and AGM:
 Audit Time (5 Month)  Preliminary Audit/R
 NRB-NAS-IAS/IFRS  Management Reply
 Publish in websites and  Adjustment if any
newspaper, notice board (by Supervisor)
 Restriction to change  Final Audit/R
standard form
 All Financial Statements
 LFAR
 Annual Account Publish

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 Accounting Policies
The directive issued by NRB requires banks to
adopt the following accounting policies:

 Depreciation Policy  Income Tax Provision

Policy
 Investment Policy
 Capitalization Policy
 Non Banking Assets
 Exchange
Policy
Equalization Policy
 Write-off Policy  Income Expense
recognition Policy
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 Components of Financial Statements
• Balance Sheet
• Profit & Loss Account
• Profit & Loss Appropriation Account
• Statement of changes in equity
• Cash Flow Statement
• Policy disclosure
• Notes to the accounts
• Disclosure under Pillar 3 (NCAF)

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 Directives NO 5
Risk Minimization on Banking Business
• Risk classification
• Liquidity Risk
• Interest Rate Risk
• Forex Risk
• Credit and Investment Risk
• Liquidity Risk Minimization: Liquidity profile depending upon
maturity period- and time interval
• Assets and liabilities of balance sheet should be segregated as per
their maturity under the different time buckets
– (0-90 days, 91-180 days, 181-270 days, 271-365 days
and above 1year)-form no. 5.1 Quarterly <15 days to S.
Dept

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 Risk Minimization …..
– Core deposit and minimum balance as primary
deposit can be classification above 1 year
bucket
– LCY Credit/(LCY Deposit+Core Capital )<80%
• Interest Rate Risk Minimization
– RSA and RSL (exclude cash and non-interest
bearing account)
– GAP analysis
– Form No. 5.2 Quarterly <15 days to Supervision
Dept.

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 Risk Minimization …..
Foreign exchange risk minimization
Exchange Fluctuation Fund as per directive 4
Net position of short term (1 month) and long term
Daily Net position of foreign exchange should not
exceed 30 percent of core capital
Form no. 5.3 weekly <7days to Supervision Dept.
Credit and Investment risk minimization
LLP (directive 2)
SOL and Sectoral Limit (directive 3)
Investment Limit and Adjustment Fund (directive 8)

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 NRB Directives No 6: Corporate governance
Code of Conduct of Directors
 Minimum Acceptable Code of Conduct
 Prohibition going against the interest of
institution
 Restriction in doing part time job for CEO
 Any director of deposit taking institution will not
be a director of other deposit taking institution
 Restriction in taking patronize
 Restriction on Misuse of Authority
 Responsibility for maintaining Complete recording
and reporting

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 Code of Conduct of Directors…..
 Maintaining of trust and confidentiality
 Equal treatment for all
 Written acceptance to comply code of conduct
 Self declaration regarding loan availed any licensed
institution by oneself, family and family
owned/controlled firm.
 3 times absent in Board meeting without early
inform assumed to vacant director’s post.
 Professional director and family should not owned
promoter share of respective BFIs

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Duties and Responsibilities of BOD
– Appointment of appropriate CEO
– Employee's Code of Conduct and staff bye-law
– Formulation of Audit Committee
– Completion of Internal audit and report to Audit committee
– Proper inspection and supervision of Institution
– Authority delegation with full responsibility within BOD
– Formulation of CPG, ALM , Budget, planning and policies and
monitoring compliance
– Keep knowledge of all relevant law, rules and directives and
compliance status.
– Restriction to provide Credit and Facilities to directors,
shareholders, employees and its related firms and
companies

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 Others…

– Appointment of CEO
– Code of Conduct of Employee
– Audit Committee- under non executive member
– Loan band to Directors, Promoters, Shareholders,
employee and relater parties
– Good governance act- Code of conduct
– Internal committee/sub-committee
• Audit
• Risk Management
• Employee Service/ HR

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Reporting Requirements on Code of Conduct

– Written acceptance and additional code of conducts of BOD needs

to be submitted to BFIRD and related supervision Department
– The compliance status needs to be reported to BFIRD and related
supervision Department within 15 days of each FY ends
– If code of conduct not obey by director, should be reported
promptly to NRB.
– Appointment of CEO and any alteration in BOD should be
reported.
– Any action taken to staff regarding violation of code of conduct,
should be recorded and present to on-site team
– Audit committee should regularly report to BOD

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 Directives NO 7
Supervisory Directive Implementation
• Implementation of directives and guidelines
provided in the context of Inspection and
Supervision
– Board of Directors should provide prompt action on the
remarks and suggestions within 30 days of receiving of
Inspection report of Supervision Department
– Special attention should be given to the areas such as:
Loan Loss provision, Capital adequacy, Assets Liabilities
management, Internal audit and Control,
Implementation of Planning, policies and procedures
– Regular follow up and quarterly progress monitoring

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LLP and Loan Portfolio Improvement
Plan
• Ensuring addition in loan loss provisioning as
per the requirement of on-site inspection
report in the current quarter and informing it
to NRB

• After receiving the direction from on-site

inspection report, Loan portfolio improvement
plan, regarding overdue by 3 month, should be
submitted with in thirty days.
– Ka class – Loan of 10 M and above
– Others – Loan of 5M and above
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 Capital Adequacy Plan
• Capital adequacy plan within thirty five days of
receiving directions from NRB inspection report.
• Matters:
– Statement of present capital as well as future capital
to maintain capital adequacy
– Classified and reclassified Assets
– Estimation of cumulative profit
– Required capital, additional provision made by own
institution and time frame to maintain capital
adequacy as per NRB directives.

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 Other…..
• Assets liabilities management policy: require
amendments
• Internal audit & control System
• Implementation of plan and policies
• Follow up by NRB

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 Directives NO 8
Investment
– NRB bonds and Government Bond
– Shares and securities
– Valuation of shares and debentures and
– Review of Investment Policy

Investment Policy
Investment policy and procedures should be
prepared and implemented after approving from
BOD.
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 Investment…
– No limit on investment in govt. securities and NRB
Bonds.
– Share & Debentures;
• Investment of the securities of listed companies only
• In case of investment in not listed companies, if the
securities is not listed within one year (in case of newly
opened companies, 2years) from the investment made,
Investment Adjustment Reserves should be created
• For Kha and Ga Class, Limit on real estate 25% of Core
Capital.
• Housing and Land Development; 10% of Core Capital,
Investment in Public Limited Companies only.

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 Investment…
– Investment in corporate share and debenture should not exceed to
one corporate 10% and all corporate 30 % of its Core capital (10% of
paid of capital of that institutions and 25% in D Class institutions).
Excess investment made should be deducted from core capital
– 20 % to companies with financial interests is allowed but it should be
deducted from Core Capital

– Underwriting of Securities
• Ka Class- No limit on underwriting.
• Kha Class- One corporate 20% of CC, All Corporates 100% of CC.
• Ga Class- One corporate 10% of CC, All Corporates 50% of CC
• No restriction in underwriting of share & Debentures of licensed
institutions.
– In case of take over of share of underwriting commitments;
• If not disposed/sold within one year, it should be deducted from Core
Capital

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 Investment…
• Half yearly investment portfolio review and it
should be submitted to NRB after verification
of internal auditor and approval of
management,
• With in Fagun 15 and Bhadra 15 each year.
• Securities are valued at; Cost price or Market
Price whichever is Less.
• When Market price is less than cost price, the
difference amount should be provided for;
“Provision for Possible Loss”.
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 NRB Reporting as per Directive No.9
Submission
Name of Returns Form No. Frequency
Period

Statement of Assets and Liabilities NRB NI FA 9.1 Monthly <15 days

Statement of Profit and Loass NI FA 9.2 Monthly <15 days
Statement of Sectorwise Loan and Advances NRB NI FA 9.3 Monthly <15 days
Productwise Loan and Advances NRB NI FA 9.3 (ka) Monthly <15 days
Statement of Securitywise Loan and Advances NRB NI FA 9.4 Monthly <15 days
Statement of Deprive Sector Londing NRB NI FA 9.5 Quarterly <15 days
Statement of Loans and Advances extended to Director/Chief
NRB NI FA 9.6 Quarterly <15 days
Executive/Promoter/Employees and Shareholders
Detail of Promoter Share pledge in to another BFI's NRB NI FA 9.6.1 Quarterly <15 days
Loan To Government Corporations NRB NI FA 9.7 Monthly <15 days
Statement of Deposits NRB NI FA 9.8 Monthly <15 days
Statement of Foreign Assets NRB NI FA 9.9 monthly <15 days
Statement of Large depositor and borrower NRB NI FA 9.10 Quarterly <15 days
Statement of Outstanding Loan to Large Borrower NRB NI FA 9.11 Quarterly <15 days
Periodwise Statement of Overdue Loans and Advances NRB NI FA 9.12 Quarterly <30 days
Interbank Transaction Statement NRB NI FA 9.13 Daily Next Day
Quarterly Financial Satement NRB NI FA 9.14 Quarterly < 35 days
Statement of Electronic Banking Transaction NRB NI FA 9.15 Monthly <15 days
Statement Branch Office and it deposit and credit NRB NI FA 9.16 Quarterly <15 days
Interest Rate wise Deposit NRB NI FA 9.17 Monthly <15 days
Interest Rate wise Loan NRB NI FA 9.18 Monthly <15 days
Statement of Shareholder, employee and Locker NRB NI FA 9.19 Bi-Annual <15 days

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 Other Provisions
 If not submitted on time.
 Penalty; from Rs 10,000 to Rs 50,000 as per the
classification of the Bank and Financial Institution.
 Other actions according to NRB Acts 2058 and
BAFIA.

 BFIs need to assign the job of NRB Reporting to

separate Staff. The staff should be made
responsible for the regular reporting.

Upon non submission of above statements on time,

actions should be taken according to the NRB
directions.
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 NRB Directives 10
Sell and Transfer of Promoter Share

1. Incase of death or separation of family, BFIs need

to inform the NRB with in 15 days of transfer.
2. Promoters should sell the promoters share to
their own group.
• Inform NRB within 15 days of transfer of share
within their promoters group.
• If there is no possibility of sale of share among
the group, then Promoters can sell their shares to
others.
• New promoters will be remain in the same
promoter group.
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 Promoter Shares can not be sold
and transferred to;
• B’listed and not completed 3 years of delisting.
• Internal & External auditor of the related Inst.
• Legal & Other Advisor of the Institutions.
• Involved in business(contract/partnership) with
licensed institution
• Tax defaulter or irregular in maintaining PAN
• Involved in Fraudulent activities that is proved
by court
• Stock broker or Market maker, Co-operatives
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 Promoter Shares…
• Existing Borrower of the same institution except “Gha”
• Holding share ownership below 15 % of paid up
capital and if it would exceeds 15% after transfer
• In case of firms and Company; not having
accumulative profit since last two years.
• Lacking minimum qualification and experience
specified for a promoter as per NRB directive
• against section 9 and 11 of BAFIA, 2006

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 Pledging the Promoter Shares
• Promoter holding >1%: can pledge 50% of their
holding no. of Share
• Loan amount maximum 60% of last transaction Price of
promoter share or 50% price of 180 day’s average
whichever is low.
• Promoter share can not be acquired as NBA.
• It should be sold with 6 months of loan overdue.
• Loan for maximum 1 year only.
• No Restructuring and Rescheduling.
• 100% provisioning in case the loan is in other than pass
Category.
• Mandatory in Blacklisting with in 21 days of due date.

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 Promoter Shares
• Cooperatives can not be the promoter share
holders of the Banks and financial institutions. But
no restrictions in “Gha Class”.
• For this purpose all those shares regarded as
Promoters share which are not allocated through
the process of IPO.
• Promoters, Directors and their Family can’t acquire
the public shares. Exception; in case of under
subscription.
• Promoters shareholders can not be the candidate of
Directors from the groups other than promoters.

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 Promoters Shares…
• Promoters having less than 2% ownership
of paid-up capital of the institutions can
sell or transfer the share without approval
of NRB. But new shareholders should
meet the “Fit and Proper Test” criteria.
– But can not split the share to make less than
2% for this facility.

92
 Promoter Shares….
BFIs can transact their promoters share as a
public share listing it in the secondary market
maintaining at least 51% of the promoters in
the institution.
•5 years of Operations.
•Maintaining at least 51% of Promoters.
•Pro-rata Basis among Promoters share
investment.
•Amendment of MoA/AoA, NRB approval
after recommendation of Board of the
institution.
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 Promoter Shares….
• Once converted in public share can’t be
converted into promoters again.
• Only one time basis. (one off basis)

• Violation of this directives by any promoter,

group or institution can not be a promoter and
director to any institution for five years.
• New promoters can’t be entered in the process
of capital increment except in case of right
renounce.
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 Cross Holding
– Waiver on sale/purchase of promoter shares
through NEPSE within the group.
– Priority to existing shareholders not required.
– Buyer will be in the promoter category.
– Buyer should not be black listed, self declaration
for eligibility.
– Buyer may further sale/purchase the share
thorough security exchange market.

Cross Holding of securities(including hybrid

capital instruments) not allowed, except in case
of Gha Class and NRB approval.

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 Directives NO 11
Consortium Finance
 Consortium Finance,
 Loose Consortium: combine investment without forming
consortium
 Condition for participation: Only Licensed institution but
EPF, CIT, & Insurance can participate under their leading
 No additional loan can provided by non-consortium
member without approval of consortium group
Timeframe for lending decision: within 90 days from
formulation of consortium.
Selection of participating banks: right to the borrower and
loan applied bank
Group formation of Consortium banks before disburse
loan
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 Consortium Finance…
Selection of lead banks: bases are loan amount and
banking relation with borrower
Lending and recovery through lead bank
Role and duties, rights and responsibility of Lead
banks
Duties and responsibility of participating banks etc.
 Reporting Requirement:
 The lead bank should submit the information and
statement as per Form No. 11.1 within 30 days
from the Ashwin, Poush, Chaitra and Ashad month
end.
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 Directives NO 12
• Credit Information and Black Listing
– Credit information is compulsory
– Quarterly report of lending from banks and financial
institutions to CIC
– Customers details up to the lending limits of 25 lacs
– Process of black listing
– Classification of borrowers as willful and non-willful
defaulters
– Provisions for asset valuators (less than 2/3 at auction)
– Actions on false financial statements approved by
auditors: Recommending to ICAN
– Restriction on lending to blacklisted borrowers
– Forfeiture of Passport
– Conditions of inclusion in and removal from black list
etc.
– Membership of CIC
– Publication of Names of blacklisted borrowers>10m
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 Reporting Requirement
• Loan Amount Exceed 25 lakhs Should be reported
with Ka.Su.Fa.No.1 within 15 days of loan
disbursement.
• Regular report as per Ka.Su.Fa.No.2 should be
submitted on quarterly basis till loan will not fully
repaid.
• If any Change in status of reported loan as per
Ka.Su.Fa.No.1, it should be informed within 15
days.
• CICL must publish public notice regarding the
Black listed customer having more than 10M
outstanding on half yearly basis.
99
 Directives No 13
• Compulsory Reserve Ratio (CRR)
– A class= 6 % in NRB of their domestic deposit liability
– B and C Class =2% of deposit liability (If they operate the current
A/C, they have to maintain 5 % and 4% respectively)
– D class=0.5% of total savings and borrowings funds ( for group,
personal, special saving), they also have to maintain 2.5% liquid
assets of Total Deposit
– If not NRB there, They can be deposit at current a/c in “Ka” class
Bank
• Statutory Liquidity Ratio (SLR)
– Investment in govt. securities, NRB Balance, Vault Cash
• A Class =12% of Domestic deposit liability;
• B & C Class= 9% & 8 % (6% to those FIs which do not collect current and
call deposit)
100
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 Directives No 14
Branch Expansion
– Prior approval is needed to open, close or merger, transfer
of branch offices or any type of offices
– Capital plan should submitted to open a new branch who do
not meet the paid up and minimum capital fund.
– A class, B Class (national level) = one branch in KTM
after two in outside KTM and one in low banking presence
14 districts.
– 1KTM= 2 Outside+1 in 14 districts
– 0% loan granted if the branch opened at low banking
presence districts
– NPA level at prudent level (5%) & capital adequacy,
business plan ( along with IT networking) are most

102
 Directives No 14
Branch Expansion…
– C class- additional capital of Rs.20 mil for Ktm,
Rs. 5 mil for each additional branch outside ktm.
– D class: Complying capital adequacy, free to
open, close, merge or transfer within their
working area. ( notification to NRB within 15
days)
– All banks should be open on the day NRB is
opened
– Branch should be opened and operated within 6
month after board approval.
– Action on Non-compliance as per NRB Act
2058 and BAFIA 2063. 103
 Directives No 15
• Interest Rate
– All BFIs are free to quote their interest rate. (saving spread 2%)
– D Class institutions are free to quote Flat Rate.
– Interest policy and procedures should be in the
written form and decided by responsible authority.
– Lending and deposit rate should be reported
Quarterly to the NRB within 7 days and any
changes in rate and minimum balance at current &
saving should be published in national newspaper
by national level institutions and in regional level
newspaper by regional level inst.
– Interest income should be accounted in the Cash
Basis not in Accrual Basis
– Base Rete monthly publish
– Spread Rate upto 5%

104
 Directives No 16
Financial Resources:
Deposit Debt Instruments IB Borrowing
Resource (Deposit) Mobilization
– A Class = No limit on Resource Mobilization
– B Class = 20 times of core capital
– C Class = 15 times of core capital
– D Class = 30 times of core capital
Institutional deposits Limits:
20 percent per institution for A, B & C class
60 percent overall institution for A, B & C class 105
 Directives No 16…
Rules & Process should be formulated,
Borrowing can be collected <one third of total deposit>,
Conditions for Issuance of debenture:
 50% of core capital,
 Operating since 5 years,
 Share issued to the public & listed since 3 Yrs
 No accumulated losses.
• Licensed inst. Cannot open any interest bearing
deposit account within them.
• Deposit Insurance: Saving and Fixed deposit upto 2 lakh of Natural
Persons
• Unclaimed Dividend Account
• Unclaimed and dormant deposit account with depositors name should
published at leaset once within 1 month after fiscal year end in national
level newspaper
106
Directives No 17: Deprive Sector Lending
• Definition of deprived sector
- Deprived sector refers to women, minority and
ethnic groups, disabled, small farmers, labor and
landless individuals with low income and socially
backward people.
- Loans given to self employment micro –projects
targeted towards improving the financial and
social position of the individuals falling under
deprived sector is called deprived sector lending
(DSL).

107
 Deprive Lending …………………

Deprive Sector Loans: fund provided by Banks to

MF development banks
5% lending on deprived sector is required for A,
4.5% for B & 4% for C Class institutions
It could be direct or indirect.
Low cost housing (with secured collateral upto 4
lakh loan to deprived people)
Yuva Sworojgar fund ….. Can be classified claims
on government in CA Basel II

108
 Computations

• All existing A, B and C class financial

institutions who have completed one year of
operations.
• Computed on a quarterly basis
• Based on the total loans of preceding six
months.
• Shortfall in DSL shall be penalized at the
highest published rate.
109
 Deprived (Directed)Lending
Deprive Sector Loans, summary ;
 Loan up to 1 lakh to low income/deprive income group,
 Loan to Micro hydropower, Solar home system, solar cooker, solar dryer, solar pump,
biogas, improved water mill, improved cook stoves, wind energy up to 1 lakh each family.
 Loan up to 3 lakhs for small & cottage industries.
 Loan up to 1.5 lakhs for employee in foreign countries,
 Loan to micro finance institutions,
 Loan to micro finance co-operatives,
 Loan to wholesale MF development banks,
 Share investment in GBB, RMDC, MFDB’s,
 Low cost housing loan up to 4 lakhs,
 Loan to hospital up to 5% of core capital.
 Loan to community hospital operated in rural area up to 10M
 If loan is mis used- loss provision and 150RW

110
Productive, agri and energy Sector Loans

• Min 20 %, 12 % on later
• Deadline 2072 Ashadh
• For B and C:
• 15 and 10 % within 2073 Ashadh
• Annual action plan with semi-annual
monitoring mechanism (17.2)
• Semiannual review by BOD and
reporting

111
Directives No 18
Merger, Acquisition & Up gradation
Upgrading
• Upgrade only “Kha to Ka” and “Ga to Kha”…….1 step
• Capital Adequate
• Profit making since last 5 years
• NPL Below 5% of total loan
• Meeting all other criteria set by NRB.
• Working area also one step increment/reduction

Merger & Acquisition (as per merger and

acquisition bylaw, 2068 and Acquisition bylaw
2070)
• Buy and sell of share should be stopped.
• Only after Capital increment/for maintain.
112
Directives No 19: KYC
Anti Money Laundering and Combating for
financing Terrorism (AML/CFT)
• BFIs need to prepare necessary policy and guidelines.
• Customer Due Diligence (CDD)
• Know Your Customer(KYC)
• Information should be obtained.
• Transaction Monitoring
• Suspicious transaction should be monitored.
• Corresponding Banking relationship
• Customer’s declaration for the transaction of more
than 10 lacs.
• Transaction record should be maintained for 5 years.
• Information should be submitted to Financial
Information Unit(FIU) of NRB.
113
 Directives No 20
Subsidiary Companies
• D Class Micro-finance Development Bank
– Promoter Shareholding(51%-70%) & at least 30%
for Public
– Harmonization in Policies, Procedures & Systems
– Disclosure of Related Party Transaction
– Separate & Consolidated Capital Adequacy
• Merchant Banker
– Established as a public limited company
– Promoter Shareholding(51%-70%) & at least 30%
for Public

114
 Directives No 21
Electronic Banking Services
• Branchless Banking
• Mobile Banking
• Internet Banking
• E-Card: Debit/Prepaid/Credit
• Responsibility and commitment
• Agreement with Customers
• Authorized Business Agent
• Agent Selection Provisions
• Third Party use for technical service

115
Directives No 22 Consumer Protection and
Literacy
• Transparency
• Simple language
• Information: not ambiguity
• Simple banking: senior citizens and diff. abled
• Changes of charges and condition of financial services
• Account operating and closing charges
• Cheque payment: charges and B’listing
• Interest rate
• Service charges
• Prepayment
• Grievance Desk: hotline and website portal
• Financial literacy program etc.
116
Directives No 23:Miscelleneous
• Banks can work as insurance agency.
• Banks should be away from the use of pirated software.
• Capital Plan should be submitted to NRB.
• Paid-up Capital Requirement:
• A class 8 billion
National Level Regional 4-10 District 1-3 District
B Class: 2.5 billion - 1.2billion
500 M
C Class: 800M - 800 M
400 M
D Class: 100M 60M 20M
10M
*For Leasing transaction
• Loan write off policy.
• Standing Liquidity Facility(SLF).
• Inward Remittance, local remmittance.
• Loan Deed, Mortgage Deed, Hypothecation Agreement and Trust
Reciept agreement should be in Devanagiri Letters. 117
• Others