Why is there fear regarding the proposed amendments in the Banking and Financial Institution Act (BAFIA)?

Two sections that seek to distinguish between "bankers" and "businesspeople" have been discussed here:

The first is Section 52(1), which states:

"A bank or financial institution shall not provide any loan or facility to a person who has a significant ownership in the bank or financial institution or to a related party."

The key terms in this section are "related," "person," and "bank." According to the definition in Section 2, "bank" refers to commercial banks and infrastructure development banks. The definition of "related person" includes both natural persons (individuals) and legal persons (companies and institutions). However, the term "significant ownership" refers only to natural persons, not institutions. Therefore, according to the proposed amendment, a bank or financial institution cannot provide loans or facilities to a related person or institution. However, such related persons or institutions may still borrow from other banks and financial institutions. The current law does not contain the term "related," and the proposed amendment clarifies this by making the provision more liberal. This change does not appear to have any significant impact.

According to the proposed section, banks and financial institutions cannot provide loans or facilities to natural persons who have significant ownership in commercial banks and infrastructure development banks. However, the amendment does not prevent loans from being given to institutions or companies with significant ownership by other banks and financial institutions, nor does it stop the financial institutions from lending to individuals with significant ownership in those institutions. Therefore, natural persons who have significant ownership in commercial banks and infrastructure development banks will not be able to obtain personal loans (such as auto loans, home loans, share loans, overdrafts, etc.) from any other banks or financial institutions. Yet, there will be no significant economic disruption or harm to the country due to this provision.

The second section is Section 18: "Ineligibility of Directors," where a new provision (Section 1) has been proposed to be added. It states:

“If the total business loan taken by a related person or their family or a company or institution related to them exceeds one percent of the paid-up capital of the bank or financial institution they intend to be a director of, then they are ineligible to be a director."

According to this provision, if a person wishes to be a director of a bank or financial institution with a paid-up capital of NPR 10 billion, and if that person or their related company/institution has taken more than NPR 100 million in loans from the bank or other financial institutions, then they will not be eligible to be a director of that institution. However, if they are considered a "related person," they will still be eligible to be a director even if they or their related institutions have taken loans exceeding NPR 100 million. Therefore, this provision restricts certain related individuals from becoming directors of larger banks and financial institutions, but it does not lead to any economic collapse or disruption in the country.

The legal provisions proposed to distinguish "bankers" and "businesspeople" do not appear to have any negative effects. Thus, creating fear, panic, and confusion in society based on these provisions is not appropriate. While the state's objective of distinguishing "bankers" and "businesspeople" may not be fully achieved through the proposed legal provisions, these provisions are still a step towards fulfilling that objective.