Chapter 12 · Part 12 — Regulatory, Governance and Market Terms
NRB, BAFIA, ICAN and the class structure
Who regulates a Nepali bank, under what law, and why the four-class licence structure shapes everything.
26 terms. The institutional landscape a Nepali commercial bank operates inside — who regulates it, under what law, and how its shares trade. These terms appear throughout Parts 1–11; this Part is the reference.
Part 12 checklist
Nepal Rastra Bank (NRB) · Unified Directives · Bank and Financial Institutions Act, 2006 · Class "A" financial institution · Class "D" financial institution (microfinance) · Institute of Chartered Accountants of Nepal (ICAN) · Nepal Accounting Standards Board (NASB) · Securities Board of Nepal (SEBON) · Securities Registration and Issuance Regulation, 2073 · Securities Businessperson (Merchant Banker) Regulations, 2008 · Companies Act, 2063 · Nepal Stock Exchange Limited · Annual General Meeting (AGM) · Promoter Shareholder / Public Shareholder · Independent Director · Merchant and investment banking · Share brokerage business · Non-Performing Assets (NPA) · Capital Adequacy Ratio · AML/CFT compliance · FATF Grey List · Corporate Governance · Code of Conduct and Ethics · Asset and Liability Committee (ALCO) · Maximum Price / Minimum Price / Closing Price · Trading number / Days of Trading
The regulatory map
┌──────────────────────────────────────────────────────────────────────────┐
│ GOVERNMENT OF NEPAL │
│ Ministry of Finance · Parliament │
└────────┬─────────────────────┬─────────────────────┬────────────────────┘
│ │ │
▼ ▼ ▼
┌─────────────────┐ ┌──────────────────┐ ┌─────────────────────────┐
│ NEPAL RASTRA │ │ SECURITIES │ │ OFFICE OF THE COMPANY │
│ BANK (NRB) │ │ BOARD OF NEPAL │ │ REGISTRAR │
│ │ │ (SEBON) │ │ │
│ Central bank & │ │ Capital market │ │ Companies Act 2063 │
│ banking │ │ regulator │ │ Incorporation, │
│ supervisor │ │ │ │ AGM, directors │
│ │ │ │ │ │
│ • Licensing │ │ • Public issues │ │ │
│ • Unified │ │ • Disclosure │ │ │
│ Directives │ │ • Merchant │ │ │
│ • Capital │ │ bankers │ │ │
│ Adequacy │ │ • Brokers │ │ │
│ Framework │ │ • Mutual funds │ │ │
│ • Monetary │ │ │ │ │
│ policy │ │ │ │ │
└────────┬────────┘ └────────┬─────────┘ └─────────────────────────┘
│ │
│ ▼
│ ┌──────────────────┐
│ │ NEPAL STOCK │
│ │ EXCHANGE │
│ │ (NEPSE) │
│ │ Trading venue │
│ └──────────────────┘
│
▼
┌────────────────────────────────────────────────────────────────────┐
│ NMB BANK LIMITED │
│ Class "A" commercial bank │
│ Listed on NEPSE │
└────────┬───────────────────────────────────────────────────────────┘
│
▼ subsidiaries regulated separately
┌────────────────────┬─────────────────────┬────────────────────────┐
│ NMB Capital │ N.M.B. Securities │ NMB Laghubitta │
│ SEBON — merchant │ SEBON — broker │ NRB — Class "D" │
│ banker │ │ │
└────────────────────┴─────────────────────┴────────────────────────┘
ACCOUNTING STANDARDS (separate track)
┌──────────────────────┐ ┌──────────────────────────────────┐
│ NASB │─────▶│ ICAN │
│ Pronounces NFRS/NAS │ │ Issues standards, carve-outs, │
│ │ │ explanatory notes; regulates │
│ │ │ auditors │
└──────────────────────┘ └──────────────────────────────────┘REGULATORS AND LAW
Nepal Rastra Bank (NRB)
Simple definition. Nepal's central bank and the regulator of every bank and financial institution in the country.
Technical definition. The central bank established under the Nepal Rastra Bank Act, responsible for monetary policy, currency issuance, foreign exchange management, and the licensing, regulation, supervision and resolution of banks and financial institutions.
What NRB controls that appears in this guide.
| Function | Where it appears |
|---|---|
| Licensing BFIs by class | 12.4, 12.5 |
| **Unified Directives** — the operating rulebook | Throughout, every [R] |
| **Capital Adequacy Framework** | Part 6.1, 6.9, 6.10 |
| Loan classification and provisioning | Part 1.7, Part 6.2 |
| **NFRS 9 ECL Related Guidelines, 2024** — the higher-of rule | Part 8.D.18 |
| **Interest Income Recognition Guidelines** | Part 2.1, Part 8.E.4 |
| CRR, SLR, CD ratio, liquidity requirements | Part 1.2, Part 6.6, 6.16 |
| Base rate formula | Part 6.7 |
| Deprived-sector lending minimum | Part 1.6, Part 9.5 |
| **Statement of Distributable Profit** — regulatory reserve | Part 7 (entire) |
| Prescribed financial statement format | Throughout |
| **Merger and Acquisition Bylaws 2073** | Part 1.14, Part 11.7 |
| Refinance, SLF and repo facilities | Part 1.19 |
| Corporate governance and board committee requirements | Part 10, 12.22 |
| AML/CFT supervision | 12.20 |
Related terms. 12.2 · Part 15 · every [R] in this guide
Unified Directives
Simple definition. NRB's consolidated rulebook for banks and financial institutions.
Technical definition. The comprehensive set of directives issued by NRB under the Nepal Rastra Bank Act and BAFIA, consolidating prudential, operational, governance and reporting requirements for licensed institutions, organised by directive number and periodically reissued.
Structure — directives are numbered by subject. Broadly (subject to reissue and renumbering [R]):
Capital adequacy · Loan classification and provisioning · Single obligor and sectoral exposure limits · Accounting and reporting · Corporate governance · Liquidity and CRR · Interest rates and spread · Deprived sector lending · Consumer protection and grievance handling · AML/CFT · Institutional arrangements
How to read a [R] flag in this guide.
REGULATION-DEPENDENT means:
→ the STRUCTURE is stable and stated here
→ the NUMBER (percentage, threshold, rate) is set in the
Unified Directives and CHANGES
→ verify before relying on it
Examples in this guide:
Capital adequacy minimums Part 6.1
Provisioning % per loan grade Part 1.7, 2.11
CD ratio ceiling Part 6.6
General reserve appropriation % Part 5.3, 7.2
Deprived sector minimum % Part 9.5
CSR and training fund % Part 7.5, 7.6
Single obligor limits Part 11.11
NBA provisioning schedule Part 1.12, 7.12Related terms. 12.1 · Part 15 · every [R]
Bank and Financial Institutions Act, 2006 (BAFIA)
Simple definition. The law that governs banks and financial institutions in Nepal.
Technical definition. The principal statute establishing the framework for the incorporation, licensing, operation, management, regulation and resolution of banks and financial institutions, under which NRB exercises its supervisory powers.
The report's reference:
What BAFIA governs that appears in this guide.
- The four-class licensing structure (A/B/C/D) — 12.4, 12.5
- Permitted and prohibited activities by class
- Minimum paid-up capital requirements [R] — which is why bonus shares matter (Part 5.25)
- General reserve appropriation requirement [R] — Part 5.3, 7.2
- Board composition, director qualification and disqualification
- Restrictions on connected lending to promoters and directors — Part 10.8
- Restrictions on the distribution of dividends
- NRB's supervisory, corrective and resolution powers
Related terms. 12.1, 12.4, 12.5 · Part 5.3 · Part 10.8
Class "A" financial institution
Simple definition. A full commercial bank — the top tier of Nepal's banking licence structure.
Technical definition. An institution licensed by NRB under BAFIA to carry out the full range of commercial banking activities, subject to the highest capital, governance and prudential requirements of the four classes.
Nepal's four-class structure.
┌────────┬─────────────────────────┬──────────────────────────────────┐ │ CLASS │ INSTITUTION TYPE │ CHARACTERISTICS │ ├────────┼─────────────────────────┼──────────────────────────────────┤ │ "A" │ COMMERCIAL BANK │ • Full banking services │ │ │ │ • Foreign exchange dealing │ │ │ ← NMB Bank Limited │ • Trade finance, LCs, guarantees │ │ │ │ • Nationwide operation │ │ │ │ • HIGHEST capital requirement [R] │ │ │ │ • Can hold subsidiaries │ ├────────┼─────────────────────────┼──────────────────────────────────┤ │ "B" │ DEVELOPMENT BANK │ • Narrower activity range │ │ │ │ • Often regional │ │ │ │ • Lower capital requirement [R] │ ├────────┼─────────────────────────┼──────────────────────────────────┤ │ "C" │ FINANCE COMPANY │ • Narrower still │ │ │ │ • Deposit-taking and lending │ ├────────┼─────────────────────────┼──────────────────────────────────┤ │ "D" │ MICROFINANCE │ • Small-ticket lending to │ │ │ (Laghubitta Bittiya │ low-income borrowers │ │ │ Sanstha) │ • Limited deposit-taking │ │ │ │ • Funds largely by WHOLESALE │ │ │ ← NMB Laghubitta │ BORROWING from Class A banks │ │ │ │ • Serves deprived-sector policy │ └────────┴─────────────────────────┴──────────────────────────────────┘
Why the class structure matters to this guide.
• It explains the DEPRIVED SECTOR mechanism: Class A banks lend wholesale to Class D institutions, which on-lend to end borrowers (Part 1.6, Part 9.5) • It explains NMB's group structure: the bank cannot conduct microfinance, merchant banking or broking itself, so it holds licensed SUBSIDIARIES (Part 8.A.7) • It explains NRB's consolidation drive: too many institutions across four classes, leading to the Merger and Acquisition Bylaws 2073 and the goodwill on bank balance sheets (Part 1.14)
Related terms. 12.3, 12.5 · Part 1.6 · Part 9.5
Class "D" financial institution (microfinance)
Simple definition. A microfinance institution — Laghubitta Bittiya Sanstha in Nepali.
Technical definition. An institution licensed by NRB under BAFIA to conduct microfinance business — small-value lending to low-income and financially-excluded borrowers — with limited deposit-taking powers and a defined working area.
The report's disclosure:
Why the funding model creates the parent-subsidiary loan.
Class "D" institutions cannot fund themselves with retail
deposits at scale.
│
▼
They must BORROW WHOLESALE — principally from Class "A" banks.
│
▼
NMB Bank lends NPR 2,591,889 thousand to NMB Laghubitta
(Part 10.15)
│
▼
• The parent earns a spread
• The loan counts toward the parent's DEPRIVED SECTOR
obligation [R]
• On consolidation the loan is ELIMINATED — which is exactly
the Group-vs-Bank gap in "Loan and advances to B/FIs"
(Part 1.6)The credit-quality flag. Nepal's microfinance sector has experienced episodes of sector-wide stress — over-indebtedness, multiple borrowing, and repayment-boycott movements. The evidence in this report is consistent with continued pressure:
Group NPL 5.18% ← includes microfinance
Bank NPL 4.91% ← excludes it
─────
Gap 0.27pp
Group provision coverage 88.04%
Bank provision coverage 92.57%
──────
The subsidiaries are provided LESS well than the parent.Institute of Chartered Accountants of Nepal (ICAN)
Simple definition. Nepal's accountancy body — it issues the accounting standards and regulates the auditors.
Technical definition. The statutory professional body responsible for regulating the accountancy profession in Nepal, issuing Nepal Financial Reporting Standards and Nepal Accounting Standards as pronounced by NASB, issuing implementation guidance and carve-outs, and setting auditing standards.
Why ICAN matters more in Nepal than an equivalent body might elsewhere — the carve-outs.
┌──────────────────────────────────────────────────────────────────┐ │ ICAN issues CARVE-OUTS: permitted departures from full IFRS │ │ application in Nepal. │ │ │ │ │ ▼ │ │ ⇒ AN IFRS ANSWER IS NOT AUTOMATICALLY THE NEPALI ANSWER. │ │ │ │ The report documents a full carve-out lifecycle: │ │ 2077.07.25 ICAN issues Carve-outs 3 and 4 on NFRS 3 │ │ 2079.04.15 Explanatory Note on Accounting for Business │ │ Combination issued → carve-outs WITHDRAWN │ │ FY 2021/22 Goodwill recognised per the new guidance │ │ │ │ ⇒ THE APPLICABLE RULE DEPENDS ON THE DATE. │ └──────────────────────────────────────────────────────────────────┘
Carve-outs have historically affected areas central to banks, notably impairment and the effective interest rate. Always check ICAN's carve-out position for the period you are analysing — this is the single most common source of error when applying international knowledge to Nepali accounts.
ICAN's other roles relevant here: issuing auditing standards; licensing and disciplining auditors; and — as the report notes — pronouncing NFRS "along with Directives, Guidelines and Circulars issued by Nepal Rastra Bank (NRB), and other regulatory bodies."
Related terms. 12.7 · Part 8.A.1 NFRS · Part 1.14 Goodwill · Part 8.B.1 NFRS 3
Nepal Accounting Standards Board (NASB)
Definition. The body responsible for developing and pronouncing Nepal Financial Reporting Standards and Nepal Accounting Standards, converged with IFRS/IAS.
The report's reference: the interim statements are prepared in accordance with "Nepal Accounting Standard (NAS)-34 'Interim Financial Reporting' published by the Nepal Accounting Standards Board (NASB) and pronounced by The Institute of Chartered Accountants of Nepal (ICAN)."
NASB → DEVELOPS and PUBLISHES the standards
ICAN → PRONOUNCES them, issues carve-outs and guidance,
regulates the auditors who apply themRelated terms. 12.6 · Part 8.A.1, 8.A.2
Securities Board of Nepal (SEBON)
Simple definition. Nepal's capital market regulator.
Technical definition. The statutory regulator of the Nepali securities market, responsible for registering and regulating public issues, licensing securities businesspersons (merchant bankers, brokers, depository participants), regulating mutual funds and collective investment schemes, and enforcing disclosure obligations of listed entities.
Where SEBON appears in this report.
• NMB Capital Ltd. — licensed by SEBON as a MERCHANT BANKER under the Securities Businessperson (Merchant Banker) Regulations, 2008 • N.M.B. Securities Ltd. — licensed by SEBON as a BROKER • The mutual funds NMB Capital manages (Sulav Investment Fund-2, NMB 50) are SEBON-regulated schemes • The report's management analysis section is presented "as per Securities Registration and Issuance Regulation, 2073" — a SEBON requirement • The PNCPS public issue required SEBON registration (and NRB approval)
The report's own statement on market conduct:
Dual regulation. A listed Nepali bank answers to both NRB (as a bank) and SEBON (as a listed issuer). Where they overlap — capital raising, disclosure, related-party transactions — both sets of rules apply.
Related terms. 12.9, 12.10, 12.12 · Part 8.A.3
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