Banks and Financial Institutions Act, 2017

13. Bank or Financial Institution Not to Purchase Its Own Shares: (1) A bank or financial institution shall not purchase its own shares or grant loans against the security of its own shares.

(2) Notwithstanding anything contained in sub-section (1), a bank or financial institution may, with the approval of the Nepal Rastra Bank, purchase its own shares from retained profits distributable as dividend, not exceeding the percentage prescribed by the Nepal Rastra Bank, in the following circumstances:-

(a) If the full amount of shares issued by the bank or financial institution has been paid up,
(b) If the shares issued by the bank or financial institution have been listed on the securities market,
(c) If the provision allowing the purchase of its own shares exists in the articles of association of the concerned bank or financial institution,
(d) If a special resolution has been passed at the general meeting of the concerned bank or financial institution authorizing the purchase of its own shares,
(e) If the debt amount payable by the bank or financial institution does not exceed twice the ratio of capital and general reserve fund after the bank or financial institution purchases its own shares,
Explanation: For the purpose of this sub-section, "debt amount" means all secured and unsecured loan amounts taken by the bank or financial institution.
(f) If the amount for purchasing its own shares does not exceed twenty percent of the total paid-up capital and general reserve fund,
(g) If the directives relating to the capital fund issued to the bank or financial institution by the Nepal Rastra Bank are complied with when purchasing its own shares,
(h) If it is not contrary to the directives issued by the Nepal Rastra Bank from time to time regarding the purchase of its own shares.

(3) For obtaining approval to purchase its own shares under sub-section (2), a bank or financial institution must submit an application to the Nepal Rastra Bank specifying the following details:-

(a) Reason, necessity, time period and method for purchasing its own shares,
(b) Details of the assessment of the potential impact on the financial position of the bank or financial institution due to the purchase of its own shares,
(c) Type of shares proposed to be purchased, price per unit and number of shares,
(d) Maximum or minimum amount required to purchase the shares under clause (c) and the source thereof,
(e) Other details prescribed by the Nepal Rastra Bank relating to the purchase of its own shares,
(f) Other necessary details required to be disclosed under prevailing law.

(4) If, upon examining the application and attached details received under sub-section (3), it appears appropriate to grant approval, the Nepal Rastra Bank may grant approval to such bank or financial institution to purchase its own shares.

(5) After obtaining approval under sub-section (4), the concerned bank or financial institution may purchase its own shares within six months from the date of obtaining such approval or within twelve months from the date of passing the special resolution at the general meeting, whichever is later, by any of the following methods:-

(a) By purchasing through the securities market,
(b) By purchasing proportionately from existing shareholders.

(6) If a bank or financial institution purchases its own shares under sub-section (5), it must inform the Nepal Rastra Bank of the number of shares purchased, the amount paid therefor, and other necessary details within thirty days from the date of such purchase.

(7) An amount equivalent to the face value of the shares purchased under sub-section (5) shall be deducted from the paid-up capital, a separate capital redemption reserve fund shall be created, and the amount shall be deposited in that fund, and the amount of that fund shall be maintained as equivalent to paid-up capital.

(8) If a bank or financial institution purchases its own shares under sub-section (5), it must cancel such purchased shares within one hundred and twenty days from the date of purchase.

(9) Other provisions relating to the purchase of its own shares by a bank or financial institution shall be as prescribed by the Nepal Rastra Bank.