Bank and Financial Institution Act 2073

Chapter-3 Provisions Concerning Transactions of Securities

Section 13: Prohibition on purchase by Bank or Financial Institution of its’ own Shares
1) No bank or financial institution shall purchase its own shares or lend a loan against the security of its own shares.
2) Notwithstanding anything contained in sub-section (1), in the following circumstances, a bank or financial institution may, with the approval of the Rastra Bank, purchase its shares out of its free reserves available for being distributed as dividends not exceeding the percentage prescribed by the Rastra Bank: –
(a) If the shares issued by the bank or financial institution are fully paid up,
(b) If the shares issued by the bank or financial institution have already been listed in the securities market,
(c) If the Articles of Association of the concerned bank or financial institution authorise the buy-back of own shares,
(d) If a special resolution has been adopted at the General Meeting of the concerned bank or financial institution authorising the buy-back of own share,
(e) If the ratio of the debt owed by the bank or financial institution is not more than double the capital and general reserve fund after such buy-back of shares,
Explanation
: For the purposes of this sub-section, “debt” means all amounts of secured or unsecured debts borrowed by the bank or financial institution.
(f) If the value of shares to be bought back by a bank or financial institution is not more than twenty percent of the total paid-up capital and general reserve fund of that bank or financial institution,
(g) If the buy-back of shares complies with the directives relating to the capital fund issued by the Rastra Bank to the bank or financial institution,
(h) If it is not against the directives issued by the Rastra Bank from time to time with regard to buy back of shares.
3) Any bank or financial institution shall have to make an application before the Rastra Bank for getting approval to buy back its own share pursuant to sub-section (2) with the following details:-
(a) The reason, necessity, time duration and modus operandi for the buy-back of shares,
(b) A statement of the evaluation of possible impacts on the financial situation of the bank or financial institution as a result of the buy back of shares,
(c) The type of share, par value of share and number of shares purpose to buy-back,
(d) The maximum or minimum amount required to buy back shares as referred to in Part (c) and the source of such amount,
(e) Such other matters as specified by the Rastra Bank with regard to the buy-back of shares,
(f) Other necessary matters to be mentioned as per the prevailing laws.
4) The Rastra Bank may, in case it deems appropriate to grant approval to such bank or financial institution to buy back its own shares based on the application acquired pursuant to sub-section (3) and details enclosed with it, grant such approval.
5) Upon receipt of the approval pursuant to sub-section (4), the concerned bank or financial institution may buy back its shares in any of the following manners within six months from the date of receipt of such approval or within twelve months of the adoption of a special resolution at the General Meeting, whichever occurs later: –
(a) Purchasing through the securities market,
(b) Purchasing from the existing shareholders on a proportional basis.
6) If a bank or financial institution buys back its own shares pursuant to sub-section (5), it shall file with the Rastra Bank a return containing the number of shares bought back, the amount paid for the same and other necessary details within thirty days of the date of such buy-back.
7) There shall be established a separate capital redemption reserve fund, to which a sum equal to the face value of the shares bought back pursuant to sub-section (5) shall be transferred, and the amount of such fund shall be maintained as if it is the paid-up capital.
8) If the bank or financial institution buys back its shares pursuant to sub-section (5), it shall cancel the shares so bought back within one hundred twenty days of the date of such buy-back.
9) Other provisions regarding the buy-back of own shares by the bank or financial institution shall be as prescribed by the Rastra Bank.