1. Banking Law and Regulations
Unit-2
Central Bank & Legal System
Satya Narayan Kalika
Lecturer, BBA 8th sem.
Banking Law
SDC
2. Synopsys
• Concept and Meaning of central bank
• Establishment of central bank
• Composition of the BoD of NRB
• Function and legal power of NRB
• NRB relationship with Government and
other agencies
3. CENTRAL BANK-
Central Bank is known as bank of the banks and is
also regarded as bank of last resort.
It regulates the financial sector and supervises their
activities; manages and produces the national
currency; formulates and implements foreign reserve
policy; as well as formulates and implements the
monetary policy of the nation.
‘The main government controlled bank in a country,
which controls that country’s financial affairs by fixing
main interest rate, issuing currency, supervising the
commercial banks and trying to control the FOREX
rate.’-P.H. Collin writes
4. Central Bank…
• ‘Central bank may be defined as an institution
which is charged with responsibility of
managing the expansion and contraction of
the volume of money in the interest of general
public.’ – R.P. Kent
• In most countries the central bank is state
owned and has some degree of autonomy,
which allows for the possibility of government
intervention in monetary policy.
• The Riksbank of Sweden is deemed as the
first central bank in the world. (the 'third oldest bank' in
the world)
5. Central Bank…
• Some examples of popular central banks in the
world:
– USA :Federal Reserve Bank.
– Germany :Deutsche Bundesbank.
– France :Banquet De France.
– India :Reserve Bank of India.
– Japan :Bank of Japan
– Nepal :Nepal Rastra Bank.
– European :Union's European Central Bank
– Britain :Bank of England.
6. Central Bank…
• Central bank is a National Bank that does
business with the government and other banks
and issues the country’s coins and paper
money.
• Central banking is the business activity of
central bank e.g. the rate of interest charged by
a bank for lending money is fixed by the central
bank in country.
7. Central Bank…
• Thus the Central Bank is not merely being an
idle spectator when something goes wrong
with the credit and financial machinery of the
country; it takes such responsibilities on its
shoulder.
• That is why it must follow an active policy
regarding the manipulation of bank rate and
open market operation.
8. Principles of Central Bank
• Principle of welfare of Nation
• Principle of non-competition with other banks
• Principle of Stability of Monetary and
Financial Policy
• Principle of no political intervention
• Principle of protection of service holder’s
interest
• Principle of safeguarding depositor's interest
9. History of Central Bank in Nepal
• NRB was established as the national central
bank under the NRB Act, 1955 on April 26,
1956 with objectives of supervising, promoting
and directing the functions of commercial
banking activities.
• NRB is a non-profit organization fully owned
by the government.
• It has sole right to issue currency &
responsible to manage country’s foreign
exchange reserves and started issuing
currency in 1959
10. Nepal Rastra Bank
In Nepal, NRB is performing the job of central
banking from the period of its establishment.
Preamble of NRB Act 2058 mentions that to
establish a Nepal Rastra Bank to function as
the Central Bank:
To formulate necessary monetary and foreign
exchange policies, to maintain the stability of
price,
11. Contd…
To consolidate balance of payment for
sustainable development of the economy of
the Kingdom of Nepal, and to develop a
secure, healthy and efficient system of
payment;
To appropriately regulate, inspect and
supervise in order to maintain the stability and
healthy development of BFI system;
For the enhancement of public credibility
towards the entire banking and financial
system of the country
12. Establishment of the Bank (Section 3):
There shall be a Central Bank established in the
name as NEPAL RASTRA BANK in order to carry-
out the functions of Central Bank.
The Nepal Rastra Bank established under the
Nepal Rastra Bank Act, 2012 shall be deemed to
have been established under the Nepal Rastra
Bank Act, 2058.
The Bank shall be an autonomous and corporate
body with perpetual succession.
There shall be a separate seal for transaction of
business of the Bank.
13. Contd…
• The Bank may, subject to this Act, acquire,
utilize, retain, sell and otherwise dispose of or
manage movable and immovable property.
• The Bank may sue in its name and the Bank
may also be sued in the same name.
• The Central office of the Bank shall be located
at Kathmandu and the Bank may open branch,
sub-branch and other offices at any place
within and outside the Kingdom of Nepal and
appoint agents or representatives as per its
requirement.
14. Composition of BoD
There shall be a Board of Directors in the NRB
consisting of the following members:-
(a) Governor - Chairman
(b) Secretary, Ministry of Finance - Member
(c) Two Deputy Governors - Member
(d) Three Directors appointed by the
Government of Nepal from amongst the
persons renowned in the fields of
Economic, Monitory, Banking, Finance
and Commercial Law - Member
15. Nepal Rastra Bank Act (NRBA), 2058
• Nepal Rastra Bank Act 1955 is the basis of
establishing Nepal’s Central Bank in 1956,
• The new NRB Act 2002 replaced the erstwhile
Act (1955) and ensured operational autonomy
and independence of the Bank.
• It is amended 3 times at 2063, 2066 and 2073. It
has 12 chapters and 120 sections.
• The BOD (chaired by Governor) is the apex body
for policy making and the Governor is the CEO.
16. Objectives of NRBA, 2058
• To formulate necessary monetary and FOREX
policies,
• To maintain the stability of price and balance of
payment for economic stability and sustainable
development of economy, and manage it,
• To increase the access of the financial service and
increase the public confidence towards the banking
system by maintaining stability of the banking sectors,
• To develop secure, healthy, efficient payment system,
• To extend co-operation in the implementation of the
economic policies of Government of Nepal.
17. Roles of Central Bank
Prof. White says that the economists have
identified central banking with at least five
major roles.
• Serving as a banker’s bank.
• Having a monopoly of note issue.
• Acting as a lender of last resort.
• Regulating commercial banks
• Conducting monetary policy
18. Function/Legal Powers of the NRB(Sec.5)
• Power of formulation policies: e.g. monetary policy,
foreign exchange (forex), and price;
• Power of issuing notes and coins;
• Power to issue licenses to the BFIs:
– To grant, or to deny to granting prior-approval to BFIs,
– To issue license, or to deny issuing license to BFIs,
– To de-license those which were licensed in the past.
• Power of regulation, inspection and supervision
(monitoring of transaction) of the licensed BFIs,
19. Contd…
• Power to act as a banker, advisor and financial agent of
the Government of Nepal
• Power to act as a banker of the BFIs in Nepal,
• Power to play role of a lender of last resort to the BFIs,
• Power to manage the system of payment, clearing
house and settlement,
• Power to manage liquidity,
• Power to carry out other functions and take actions,
which are incidental thereto.
• Power to take action against those who violates powers
conferred under this Act.
20. Contd…
• Power to implement or cause to implement any
other necessary functions which the Bank has to
carry out in order to achieve the objectives of the
Bank under this Act;
• While exercising the powers conferred by this Act
or any other prevailing law, the Bank shall have
power to carry out other functions and take
actions, which are incidental thereto.
• No one shall violate powers conferred on the
Bank under this Act.
21. NRB and GoN Relationship
• The central bank also provide necessary advice to
the government in economic and financial matter.
• Any contact by Government of Nepal with the
Bank and by the Bank with Government of Nepal
under this Act, shall be made through the Ministry
of Finance.
• As a banker of government the central bank
provides all necessary services to the government
as a commercial bank provides to its client.
22. Banker, Advisor and Financial Agent(S.69)
• The Bank shall be the banker and financial advisor of
Government of Nepal and a financial agent of the country.
• The GoN shall consult the Bank on any matters that are
within the jurisdiction of its competence. It shall be the duty
of the Bank to advise on matter consulted by the
Government of Nepal.
• The GoN shall, while preparing annual budget, consult the
Bank on the domestic debt including overdrafts.
• The Bank shall submit a pre-budget review report to
Government of Nepal each year on the economic and
financial matters.
23. Information relating to external debt S.70
• Government of Nepal may consult the Bank while taking loan
from external sectors.
• The consultation referred to in sub-section (1) shall include the
subjects such as amount of loan, the terms and conditions of
the loan and the repayment of loan.
• Government of Nepal shall inform the Bank when external
loans have been received.
• Government of Nepal shall consult the Bank while granting
approval to private and public institutions to raise loan-creating
liability in foreign exchange.
• Government of Nepal, public institution or private sector shall
inform the Bank about the agreements concluded creating
liability in foreign exchange.
24. Functions of Fiscal Agent S.72
The Bank shall, subject to the terms and conditions
stipulated in the agreement entered into with GoN,
act as fiscal agent of GoN on the following matters:-
a)Marketing, purchase and sell of debt bonds issued
by Government of Nepal and to act as registrar and
transfer agent therefore;
b)Payment of the principal, interest and other fees of
the debt bonds referred to in sub-section,
c)Other necessary functions to be carried out as the
agent.
25. Contd.
• NRB manages government fund, exchange
remitance, other banking operations including debt.
• NRB as the debt manager is responsible for the
success of the government securities issue, and is
also allowed to pick up government securities at the
primary issue stage.
• NRB through its Banking Offices provides banking
service for the government and its agencies.
• Through the Debt Management Department NRB is
working as fiscal agent and advisor of the GoN.
26. Possible Questions
• What do you mean by central bank?
• Explain what is the role of central bank in
the development of country?
• Explain major functions and legal powers
of central bank.
• Explain composition of the Board of
director of NRB?
• Discuss about the relations of NRB with
the GoN.
27. Important things:
• Use websites:
www.nrb.gov.np
www.lawcommission.gov.np
• Slides, other notes and books
• Make: Notes daily
• Practice: possible questions
