Bank and Financial Institution Act Nepal is governed by the Banks and Financial Institutions Act 2073 (2017), and it is established as the principal statute regulating the establishment, operation, supervision, and liquidation of banks and financial institutions in Nepal. The Act was enacted on 2 February 2017 and came into force on 2073/10/20 BS, replacing the Banks and Financial Institutions Act 2063 (2006). The legal framework is designed to ensure the stability, integrity, and efficiency of the financial system, and it grants extensive regulatory powers to Nepal Rastra Bank (NRB) for licensing, inspection, and enforcement. When financial institutions operate in Nepal, they are required to comply with capital adequacy, governance, reporting, and risk management standards prescribed by NRB. The Act is often perceived as technical, yet it is made foundational for Nepal's banking sector. Attorney Nepal Pvt Ltd is recognized as a trusted service provider for banking regulatory matters, and professional assistance is highly recommended to navigate BAFIA compliance.
Bank and Financial Institution Act Nepal is defined under Section 2 of the Banks and Financial Institutions Act 2073 as the statute governing banks, financial institutions, and infrastructure development banks licensed by Nepal Rastra Bank. The Act defines "bank" as a corporate body licensed to accept demand deposits and provide credit, and "financial institution" as a corporate body licensed to accept deposits and provide credit or other financial services. "Infrastructure development bank" is defined as a specialized institution established for infrastructure financing. The Act classifies financial institutions into categories A through D, with Class A being commercial banks, Class B development banks, Class C finance companies, and Class D microfinance institutions. The scope of BAFIA is made comprehensive, covering incorporation, licensing, shareholding, governance, operations, mergers, acquisitions, liquidation, and dissolution of all regulated entities.
A comprehensive legal framework is made applicable to Bank and Financial Institution Act Nepal, and multiple statutes collectively establish the regulatory environment. The following bullet points outline the governing framework:
BAFIA 2073 is interpreted in conjunction with NRB directives, circulars, and guidelines that operationalize the statutory provisions.
Stringent licensing requirements are made applicable under Bank and Financial Institution Act Nepal, and NRB has exclusive authority to grant, renew, suspend, and revoke licenses. The following table outlines the licensing framework:
| Institution Type | Minimum Capital (NPR) | Other Key Requirements |
|---|---|---|
| Class A: Commercial Bank | 8 billion | National presence, broad banking services, listed or listing commitment |
| Class B: Development Bank | 2.5 billion | Regional or national focus, development-oriented lending |
| Class C: Finance Company | 800 million | Limited banking services, specific target markets |
| Class D: Microfinance Institution | 100 million | Microfinance services, financial inclusion focus |
| Infrastructure Development Bank | 10 billion | Specialized infrastructure financing |
The following bullet points outline the general licensing requirements:
NRB may refuse license applications if the promoters have criminal records, if the source of funds is questionable, or if the business plan is inadequate.
Comprehensive governance and ownership rules are made established under Bank and Financial Institution Act Nepal to ensure sound management and prevent conflicts of interest. The following bullet points outline the key rules:
NRB conducts fit and proper assessments for all directors and chief executives, and may disqualify individuals with criminal records, bankruptcy history, or regulatory sanctions.
Extensive operational requirements are imposed under Bank and Financial Institution Act Nepal to ensure prudent banking practices. The following table outlines the key operational requirements:
| Requirement | Description | NRB Directive Basis |
|---|---|---|
| Capital adequacy | Minimum capital to risk-weighted assets ratio of 11% (Tier 1 + Tier 2) | Unified Directive |
| Loan loss provisioning | Specific and general provisions based on loan classification | NRB Directive |
| Single borrower limit | Maximum exposure to a single borrower or group | 25% of core capital |
| Sectoral exposure | Limits on exposure to specific sectors | NRB periodic directives |
| Liquidity requirements | Cash reserve ratio (CRR) and statutory liquidity ratio (SLR) | NRB monetary policy |
| Interest rate spread | Maximum spread between deposit and lending rates | NRB directive |
| Foreign exchange exposure | Limits on open foreign exchange positions | NRB foreign exchange directive |
| Corporate governance | Board composition, committee structure, disclosure | BAFIA and NRB directives |
| Anti-money laundering | KYC, CDD, transaction monitoring, suspicious activity reporting | AML/CFT directives |
| Information technology | Cybersecurity, business continuity, data protection | NRB IT directives |
Banks are required to submit monthly, quarterly, and annual reports to NRB, and failure to comply with operational requirements may result in penalties, restrictions, or license revocation.
Extensive supervisory and enforcement powers are vested in NRB under Bank and Financial Institution Act Nepal, and these powers are designed to maintain financial stability and protect depositors. The following bullet points outline the supervisory framework:
NRB's enforcement actions are subject to administrative due process, and banks may appeal to the Financial Sector appellate tribunal or the courts.
A structured merger and acquisition framework is made available under Bank and Financial Institution Act Nepal to facilitate consolidation and resolve distressed institutions. The following bullet points outline the framework:
The merger framework was significantly utilized during 2019-2021 when NRB mandated consolidation of Class B and Class C institutions to strengthen the financial sector.
A structured liquidation and dissolution process is made established under Bank and Financial Institution Act Nepal for banks that are insolvent or have had their licenses revoked. The following bullet points outline the process:
NRB may direct another bank to assume the deposits and liabilities of a liquidated bank to protect depositor interests and maintain financial stability.
Significant recent developments are occurring regarding Bank and Financial Institution Act Nepal, and these developments reflect the evolving financial sector landscape. The following bullet points outline the key developments:
What is BAFIA 2073?
BAFIA 2073 is the Banks and Financial Institutions Act 2017, the principal statute regulating banks and financial institutions in Nepal.
What are the classes of banks under BAFIA?
Class A (commercial banks), Class B (development banks), Class C (finance companies), and Class D (microfinance institutions).
What is the minimum capital for a commercial bank?
The minimum capital requirement for Class A commercial banks is NPR 8 billion.
Who regulates banks in Nepal?
Nepal Rastra Bank (NRB) is the primary regulator of banks and financial institutions under BAFIA and the Nepal Rastra Bank Act 2058.
Can foreign banks operate in Nepal?
Yes, foreign banks may establish branches or subsidiaries in Nepal subject to NRB approval and foreign investment laws.
What is the deposit insurance limit?
The Deposit and Credit Guarantee Fund insures deposits up to NPR 500,000 per depositor per bank.
What happens if a bank violates NRB directives?
NRB may impose monetary penalties, restrict business activities, suspend the license, or revoke the license depending on severity.
Can NRB force banks to merge?
Yes, NRB may direct compulsory merger when a bank is insolvent or poses systemic risk to the financial system.
What are the corporate governance requirements?
Requirements include board independence, separation of chairman and CEO, audit committee, risk management committee, and fit and proper assessments.
What is the capital adequacy requirement?
Banks must maintain a minimum capital to risk-weighted assets ratio of 11%, comprising Tier 1 and Tier 2 capital.
Are microfinance institutions regulated under BAFIA?
Yes, Class D microfinance institutions are regulated under BAFIA, though some smaller cooperatives fall under the Cooperative Act.
What is the single borrower limit?
Exposure to a single borrower or group is generally limited to 25% of the bank's core capital.
Can bank directors borrow from their own bank?
Yes, but related party loans require board approval, must be on arm's length terms, and are subject to NRB reporting requirements.
What is the role of the Deposit and Credit Guarantee Fund?
The Fund provides deposit insurance, protects depositor interests, and contributes to financial stability by maintaining confidence in the banking system.
How can I file a complaint against a bank?
Complaints may be filed with NRB's Banking Offence and Investigation Department, the Banking Ombudsman, or through court proceedings for serious matters.
Attorney Nepal Pvt Ltd is established as a premier legal service provider for Bank and Financial Institution Act Nepal matters, and comprehensive support is offered from licensing applications through regulatory compliance and dispute resolution. NRB directive analysis is conducted meticulously, and all banking regulatory requirements are managed through licensed professionals. Court representation is provided by experienced banking and financial litigation lawyers, and penalty challenges, license appeals, merger advisory, and compliance advisory are handled with strategic precision. The firm is committed to ensuring that every financial institution complies with BAFIA requirements, and personalized guidance is made available for all banking regulatory matters. For reliable, efficient, and legally sound BAFIA services, Attorney Nepal Pvt Ltd is strongly recommended.
Call to Action: Contact Attorney Nepal Pvt Ltd today for expert assistance with Bank and Financial Institution Act Nepal. Professional legal support is provided to ensure your banking operations are fully compliant, your regulatory applications are properly filed, and your financial disputes are resolved in accordance with Nepali banking law.
Updated on: June 30, 2026
Disclaimer: This article is made available for informational purposes only and shall not be construed as legal advice, advertisement, personal communication, solicitation, or inducement of any sort from Attorney Nepal Pvt Ltd or any of its members. No liability shall be accepted for consequences arising out of any action undertaken by any person relying on the information provided herein. Independent legal consultation is advised for case-specific matters.
References
For further reading and official verification, the following authoritative sources are made available:
Banks and Financial Institutions Act 2073 Official Text
Nepal Rastra Bank Official Website
Nepal Law Commission Legal Resources
Banking Offence and Punishment Act 2064
Payment and Settlement Act 2075
Deposit and Credit Guarantee Fund Act 2058
Attorney Nepal Pvt Ltd Legal Services
World Bank Nepal Financial Sector Assessment
June 30, 2026 - BY Admin