The Constitution of Nepal 2015, which was unveiled on Sunday amid much fanfare, allows provinces to exercise the right of 'operation of the BFIs as per the policy of Nepal Rastra Bank (NRB)'.The central bank falls under the ambit of federal (center) government in the new federal set-up of the country as pronounced in the new constitution. This means NRB will have the rights to license, monitor and regulate BFIs regardless of where they are based. Along with central bank, financial policy, money and banking, monetary policy, foreign grants, support and loans are the other rights that federal government enjoys.
The list of the rights of province as per the Annex 6 include 'operation of BFIs as per the NRB policy', cooperatives, and foreign grants and support upon the consent of the federal government.
NRB Governor Chiranjibi Nepal told Republica that licensing, monitoring and supervision of BFIs across the country as well as the policy formulation of the banking and financial issues in the new federal structure will be the rights of the central bank.
"The new constitution recognizes the central bank as the sole regulator of the BFIs in the new federal set up. Though the province will have the rights to look after the operational aspect, such authority of the province will be as per the central bank's policy only," he told Republica.
Earlier when the draft constitution has put the BFIs under the list of the rights of province, NRB and bankers had protested such arrangement. NRB had even submitted its suggestion to the Constituent Assembly (CA) to bring BFIs under the ambit of the central bank, stating citing that it should be the sole regulator of the banking industry instead of allowing devolvement of such authority to the province.
However, some bankers say that the provision to allow provinces the right of operation of BFIs could increase operational risk of BFIs. "While seeing the list of the rights in the annexes, it seems that the central bank will issue license to BFIs and regulate them while province will have the rights to look after the operational aspect of the BFIs," Anal Raj Bhattarai, a former CEO of Commerz and Trust Bank Ltd which later merged with Global IME Bank. "Allowing province operational rights of BFIs licensed by the central bank could increase operational risk of BFIs," he warned.
Similarly, insurance policy, securities market and cooperatives regulation falls under the authority of the central government. However, cooperative is also in the common list of province, federal and local governments.
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