Entrepreneurs have strongly opposed the government's proposed amendment to the Bank and Financial Institution Act (BAFIA), which seeks to separate bankers from businesspersons. During discussions organized by the Finance Committee of the House of Representatives, business representatives argued that the bill includes restrictive provisions that will shrink economic activities and discourage those engaged in industries and job creation.
The amendment bill defines anyone holding at least a 1 percent stake in a bank or financial institution as a significant owner. It proposes barring such individuals—and their family members—from obtaining loans from any bank or financial institution. Article 52 of the amendment states that “banks or financial institutions shall not provide any type of loan or facility to such persons or significant owners of any bank or financial institution.”
Additionally, Article 18 of the bill seeks to prevent loan recipients and their families from becoming board directors if they have taken commercial loans exceeding 1 percent of the bank’s paid-up capital. It also bars individuals from becoming directors if the total commercial loans taken by them, their families, or companies affiliated with them exceed 1 percent of the paid-up capital of the bank or financial institution in which they wish to serve.
At Monday’s meeting, Chandra Prasad Dhakal, President of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), argued that prohibiting individuals holding more than 1 percent shares from borrowing loans for business would force many businesses to shut down.
“If I hold more than 1 percent shares, I cannot borrow for my business from any bank. I would need to sell my shares just to secure a loan,” he said. “The narrative being pushed is that the same people run the banks, take loans, and do business. If we move forward with such a provision, the results will not be favorable.” He stressed the need to consider long-term impacts when drafting and implementing such laws.
Deepak Malhotra, Senior Vice President of the Nepalese Chamber of Commerce, warned of a disaster if the bill is passed as it is. “It’s unfair to bar shareholders from taking loans when they are also required to inject capital during times of need,” he said. “If this provision is implemented without changes, it will cause turmoil in the market.” He called for a provision to allow promoter shares to be floated publicly so that promoters wishing to exit could do so.
Analraj Bhattarai, Chair of the Bank and Financial Institution Committee under the Confederation of Nepalese Industries (CNI), criticized the proposal as restrictive. “There are individuals who have established a bank, refrained from taking loans from it, and seeks loans from another bank to operate their business and create jobs,” he said. “Declaring them ineligible for loans just because they hold 1 percent shares is restrictive. This provision should not be passed without revision.” He also noted that Article 2 of the bill provides an overly broad definition of ‘related person,’ aiming to tighten control.
Bhuvan Kumar Dahal, former President of the Nepal Bankers' Association, acknowledged that while the provision may not have a major impact, it would require adequate time for implementation. “The BAFIA provisions have created fear in the private sector,” he said. “Although the impact may not be large, sufficient time must be given for execution.” He suggested increasing the number of independent and expert directors in banks to reduce conflicts of interest.
The BAFIA amendment bill was tabled in Parliament by then-Finance Minister Barsha Man Pun in January 2024. The bill is currently under clause-wise discussion in the Finance Committee, which is consulting stakeholders and experts.
During Monday’s discussion, Nepali Congress lawmaker and businessman Binod Chaudhary proposed sending the bill back to Nepal Rastra Bank for redrafting. He argued that the context of the economy has changed since the bill was initially drafted and that a fresh draft is needed.
