Nepal Rastra Bank Act, 2058: the central bank's charter

Overview

The Nepal Rastra Bank Act, 2058 was authenticated on 17 Magh 2058 (2002). It replaced the Nepal Rastra Bank Act, 2012, and the bank set up under the old Act is deemed to be established under this one (s.3). NRB is an autonomous corporate body with perpetual succession, with its central office in Kathmandu. The consolidated text now carries nine amending Acts, the latest dated 2081.

Objectives (s.4)

1. Formulate and manage monetary and foreign exchange policy to keep price and balance of payments stability for economic stability and sustainable development.
2. Increase access to financial services and keep the banking and financial sector stable so that the public trusts it.
3. Develop a secure, healthy and efficient payment system.

Without harming these objectives, NRB supports the economic policy of the Government of Nepal.

Main functions (s.5)

• Issue bank notes and coins.
• Frame and implement monetary policy and foreign exchange policy, fix the exchange rate system and manage foreign exchange reserves.
• License, regulate, inspect and supervise commercial banks and financial institutions.
• Act as banker, adviser and financial agent of the Government.
• Act as banker to banks and lender of last resort.
• Run open market operations and regulate payment, clearing and settlement.
• Issue directives and standards for savings and credit cooperatives; at the request of the Department of Cooperatives it may regulate and supervise a cooperative with share capital or annual turnover above Rs 50 crore.

Board of Directors and Governor

• Governor: appointed by the Council of Ministers from three names recommended by a committee chaired by the Finance Minister, with one former Governor and one expert named by the Government (s.15).
• Deputy Governors: appointed by the Council of Ministers on the Governor's recommendation from special class officers of NRB (s.16).
• Term: five years for Governor, Deputy Governors and directors. A Governor can be reappointed for one more term (s.18).
• Removal of the Governor: only on grounds listed in s.22 and on the recommendation of an inquiry committee chaired by a retired Supreme Court judge, which reports within one month (s.23).
• Meetings: at least once a month; quorum is the chair plus three directors, one of whom must be a Government-appointed director (s.28).

Finance and audit

• Capital is Rs 5 billion, provided by the Government (s.39).
• From distributable net income: 5 percent to the monetary liabilities fund, at least 10 percent to the general reserve, 5 percent to the financial stability fund; the balance left after other funds goes to the Government (s.41).
• Accounts are audited by the Auditor General (s.92). The annual report goes to the Government within four months of the fiscal year end.

Currency (s.51 to s.61)

• The monetary unit is the rupee, divided into 100 paisa.
• NRB has the exclusive right to issue notes and coins, which are legal tender.
• Notes are issued only against security. At least 50 percent of that security must be gold, silver, foreign currency, foreign securities or foreign bills; with Government approval the floor is 40 percent.

Relationship with the Government

• All contact runs through the Ministry of Finance (s.9).
• The Government consults NRB on domestic borrowing and overdraft while preparing the budget (s.69).
• Overdraft to the Government may not exceed 5 percent of the previous fiscal year's revenue and must be repaid within 180 days (s.75).
• The Government may give NRB directives on currency, banking and finance (s.106C).

Monetary and regulatory powers

NRB has full authority over monetary policy (s.44), conducts open market operations (s.45), fixes the compulsory reserve (s.46), lends to banks for up to one year (s.49) and may make rules and issue directives binding on banks and financial institutions (s.79).

Exam pointers

• Board has 7 members; the Governor chairs it.
• Governor: five-year term, one reappointment, selection committee led by the Finance Minister.
• Capital Rs 5 billion; audit by the Auditor General.
• Overdraft cap 5 percent of last year's revenue, repayable in 180 days.
• Note issue security: 50 percent in gold, silver and foreign assets (40 percent with approval).