Major Sections of NRB Act 2058

Functions, Duties, Power of the Bank- Section 5

• Issue Bank Notes and coins
• Formulate/implement necessary monetary policies
• Formulate/implement foreign exchange policies
• Determine system of foreign exchange rate
• manage and operate foreign exchange reserves
• issue license to banks and FI and regulate, monitor, supervise such
• Act as a Banker, Advisor and Financial Agent of Gov of Nepal.
• Banker of commercial bank and FI and act as lender of last resort.
• establish and promote the system of payment, clearing and settlement.
• to operate open market transaction for liquidity management.
• Other necessary Functions

Pre-emptive right of NRB - section 6

For the purpose of recovering the loan or any other claim of the bank against any person -

The bank shall have prior rights in the account maintained in the name of such person in the Bank or in any other commercial BFI or any movable or immovable property of such person. The bank shall take into custody such movable and immovable property and sell such property to recover the claim as prescribed.



Functions Not to be Carried by the Bank - Section 7

• To provide loans, accept deposit, provide gift to any person
• To purchase any immovable and movable property by purchase or lease or others except required by the bank to perform its functions.
• to purchase shares of any bank or financial institutions or public corporation or acquiring any proprietary rights in financial commercial agricultural, industrial or other institutions
• Carrying out any type of trade

Notwithstanding above, the bank may carry out following functions

• purchase shares of any institution which carry out the functions helpful for the bank in attaining its objective not exceeding 10% of total capital of such institutions.
• providing loans to its own employees.

institution which carry out the functions helpful for the bank in attaining its objective -

• evaluating, managing protecting, restructuring, transferring securities of commercial banks and FI
• credit rating, exchange of credit information, liquidating, printing notes and coins, clearing payments etc.
• other similar activities carrying institutions.



Privileges to NRB - Section 8

• Exemptions from all taxes, fees, and charges on income and property.
• No registration fee or registration of loan deed or refinance
• No revenue stamps on any documents relating to the bank
• Exemption from all taxes, fee, charges duty on export and import of bank notes, coins, gold, silver metal chemicals and other materials for printing bank notes and minting coins.

Provisions relating to the appointment of Governor, Deputy Governor and Directors.

Formation of BOD -

1. Governor - Chairman

2. 2 Deputy Governors - Member

3. Secretary MOF - Member

4. 3 Directors appointed by GON - Experts - Economic monitory, banking finance and law. - Member



Appointment of Governor-

Governor shall be appointed by the council of ministers, GON on the recommendation made by the recommendation committee. such committee shall be formed by the finance minister, previous governors (1) , 1 expert designated by GON.

Such committee shall recommend names of at least 3 persons qualified for governor renowned in the field of Economic monitory, banking finance and law. Council of ministers shall select one out of the 3 names.

Tenure - 5 years + 1 more term



Appointment of Deputy Governor-

DG shall be selected by the council of ministers, GON on the recommendation of the governor.

The governor shall recommend the COM, the names of DG qualified at least double in number of the vacancy.(i.e. if one deputy gov is vacant, he may suggest 2 names) from amongst the special class officers of NRB on the basis of their performance and ability.

Tenure - 5 years



Appointment of Directors -

Directors shall be selected by the council of ministers, GON.

shall select directors representing different sectors - Economic monitory, banking finance, management and commercial law

Tenure - 5 years + any term



Vacancy fulfillment - GON shall appoint for the remaining term (Gov, DG, and directors). In cases where Governor dies, resigns, falls sick, leave, unable to discharge duties - GON shall depute senior DG as Acting governor.

Prohibition on vested personal interest (Gov, D Gov and Directors)

Disclosure of Interest - Disclose to the board of any direct or indirect commercial interest of himself/herself and family members every 6 months.

Prior to meeting - Disclose personal interest and do not take part in the meeting

Disclosure at the time of appointment and retirement - within 1 month from such dates - make public the details of property held in his/her name or family members.



Code of Conduct and official responsibility - Section 37

• Devote service to the bank
• Except nominated by the bank, not allowed to assume any type of office or accept job or render services with or without remuneration except services in a non profit organization.
• Provide highest priority to the interest of the banks.
• Not to accept loans, gift in a manner that may cause undue influence of any type in discharging his duties.



Quantum of securities required to maintain to issue Bank notes

At least 50% of the following ( may be at least 40% with the permission of the bank)

• Gold
• Silver
• Foreign Currency
• Foreign Securities
• Foreign Bills of Exchange

Remaining Shall be

• Coins
• Debt bonds issued by the government of Nepal.
• Promissory notes or BOE issued within Nepal within a period of max 18 months from the date of repayment by bank.

Valuation shall be done as following

• Gold - Rate determined by GON on the recommendation of Board
• Silver - Rate determined by Board
• Coins - Face value
• Debt bond/Foreign Securities/BOE - Rate deemed appropriate by the board based on market prices
• Foreign Currency - Rates fixed by Bank

Soiled currency and Currency Recall

Soiled Currency - withdraw/Destroy/ replace with other bank notes or coins

May Deny - Design deleted, torn, defaced, more than 50% portion of the note is destroyed.

Withdraw/Destroy - With or without compensation.

Reimbursement of lost notes - Not Available

Also not available for currency the outer appearance of which is changed or counterfeit or fake notes



Currency Recall within circulation in Nepal -

Notice to be issued clearly specifying the period during which such notes or coins must be presented for exchange and where they are to be presented.

In exchange the bank shall provide other bank notes and coins in equivalent amount.

if not presented within the time so specified such notes and coins shall cease to be a legal tender



Prohibition on Counterfeiting (Section 61)

Prohibited acts

• Forge, counterfeit, alter note and coins, cheques, payment cards or assist in such act or similar acts.
• Possess, transport or issue forged notes coins cheques with the knowledge that such bank notes etc. were falsely made forged, counterfeited, altered.
• Possess transport any sheet of metal stone paper used in forging notes or coins.

Prior approval of bank required for imitation or reproduction of such notes and coins.



Mobilization of Foreign Exchange Reserves (Section 66)

The bank shall hold any of the following assets in its FER -

• Gold/silver or other precious metals
• foreign currency held by the bank or on account of the bank
• Foreign currency held in the name of the bank in the books of a foreign central bank or other banks
• BOE, promissory notes repayable in foreign exchange
• Purchase or repurchase agreements held by the bank from foreign central gov or public international financial institutions.
• forward or options repayable in convertible foreign exchange

The bank, while selecting the assets, may consider liquidity and capital.



International level reserve shall also be maintained by the bank which shall be adequate for the execution of monetary and exchange rate policies and prompt settlement of international financial transactions



if such reserves declined or are in danger of declining, the bank shall submit a report to the GON, with the report, the cause and the recommendation to remedy the situation shall also be attached.

The bank shall hold such reserves in its balance sheet.



Credit to the GON

Type of credit that can be provided - Overdraft loan not exceeding 180 days or long term loan only on account of subscription and similar payments resulting from or incidental to the membership of Nepal with international organization.

Other conditions -

• Must be provided in Nepalese currency
• written agreement to be executed
• agreement shall contain credit particulars
• certified by negotiable debt bonds having similar maturity as that of credit and interest rate equal to prevailing market rate

Limit of Overdraft -

5% of revenue of GON of the preceding FY. such revenue shall not include revenue from grants, loans or sale of property



Repayment of Overdraft

within 180 days at prevailing interest rate in the form of cash or marketable debt bond.



Limit of purchase of debt fund- The total amount of debt bonds purchased by NRB shall not exceed 10% of its revenue income in the preceding FY except in the following circumstances-

• Purchase from Secondary market for open market operations according to monetary policy
• purchase from primary market for financial stability
• Prior to the commencement of this section