Laxmi Capital News
NRB sets 6-month cooling period for CEOs to join another bank

Cooling period aimed to regulateunhealthy practices among BFIs

KATHMANDU, Dec 30: Nepal Rastra Bank (NRB) hasfixed a cooling period -- the period between resigning from one and joininganother institution -- of six months for chief executive officers of bank andfinancial institutions (BFIs). 

Issuing a circular on Friday, the NRB said that theCEO of a bank or financial institution can join another bank or financialinstitution only after six months of quitting the previous institution. 

With the new rule aiming to improve corporategovernance, the central bank has barred CEOs from jumping to another bank orfinancial institution immediately after leaving previous institution. 
Now, a CEO has to wait at least six months after leaving the BFI that he/she wasworking for, before taking up new job in another BFI. The new rule of thecentral bank comes in the wake of rapid turnover of chief executives, jumpingfrom one institution to another. 

Amid concerns of conflict of interest resulting fromsenior NRB officials joining BFIs after leaving the central bank’s job, therecent amendment on the NRB act has set cooling period for deputy governors andofficer-level employee of the central bank. The law bars deputy governor fromjoining any BFIs for up to three years of quitting or retiring from the centralbank, while such cooling period has been set for two years for officer-levelemployee.

Joining a rival bank at a leadership position withouta cooling period weakens corporate governance, as the chief executive holds allbusiness secrets and strategies, according to experts on corporate governance. 

A CEO leaving for another institution without takingan appropriate period of break has been a common practice in Nepal’s bankingindustry. Many of the CEOs who are currently leading commercial banks haveworked for another institution at the same capacity. Many executives even getoffer or make approaches to join another bank even when they are assuming theCEO’s post of rival bank and drawing pay and perks, raising ethical questionfor banking executives. 

The central bank, in its circular, said that thecooling period for CEO of BFIs was needed to regulate unhealthy practices andstrengthen corporate governance in the BFIs.  Similarly, the coolingperiod will also be in effect for the CEO joining the same bank againirrespective of the reasons of quitting the bank. 

The NRB also set a cooling period for board directorsof BFIs. With this new rule, even a board director cannot join another bank asboard director before six month of leaving the previous BFI. However,professional board director or independent board director will be immune fromthe cooling period rule, according to the NRB. 

Anil Shah may have to wait longerto rejoin Nabil Bank

 Anil Keshary Shah was recently appointed the CEOof Nabil Bank Ltd after he left Mega Bank Ltd. It is not sure whether he wouldbe allowed to join before the cooling period is over, as the circular is silentover the appointment made before the circular was issued. 

NRB spokesperson Narayan Prasad Paudel said the central bank will make thedecision based on the nature of the case. 

 “I have been inquired about this case. However,we will decide on this case only after looking at what stage this appointmentis,” said Paudel, who is the chief of Banks and Financial InstitutionsRegulation Department at the NRB, referring to the case of Shah. 

However, Shah seemed to be confident that hisappointment would not be affected. Asked about the fate of his appointment,Shah told Republica, “I don’t think so as my appointment was done before.”

Source: MyRepublica,30th December 2017

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