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PROMPT CORRECTIVE ACTIONS (Circular No. Bai.Su.Bi.Ni.Yo./23/064/65 dated 2064.12.07/March 20.

2008) The NRB has approved PROMPT CORRECTIVE ACTIONS BYLAWS-2064 and it has been made effective from 2065 Kartik for prompt initiation of the following actions in case of deficiency in the capital fund of the bank and financial institutions. (A) Where the capital adequacy ratio falls by up to 2 percentage points below the prescribed minimum capital fund i. Interaction with the senior management of bank/ financial institution on corrective course of action, and place the matter on record. ii. Require to submit a capital plan for re-capitalization of the bank. iii. Prohibition from declaring dividends and bonus shares. iv. Prohibition from establishing new branches. v. Set limit on deposit mobilization. (B) Where the capital adequacy ratio falls by in excess of 2 percentage points up to 4 percentage points below the prescribed minimum capital fund i. Actions required under clause (A) ii. Set limit on credit transactions iii. Requiring prior approval of NRB for acquiring, through purchase or lease, additional fixed assets. iv. Requiring prior approval of NRB for establishing new business lines concerning mobilization of deposit and extension of credit /facilities. (C) Where the capital adequacy ratio falls by in excess of 4 percentage points up to 6 percentage points below the prescribed minimum capital fund i. Actions required under clause (B) ii. Restriction on opening of additional deposit accounts. iii. Restriction on extension of credit. iv. Prohibition from acquiring, through purchase or lease, additional fixed assets. v. Restrictions on paying incentives, severance packages, management fees or other discretionary compensation to directors or staff members without prior approval of NRB. (D) Where the capital adequacy ratio falls by in excess of 6 percentage points up to 8 percentage points below the prescribed minimum capital fund i. Actions required under clause (C). ii. Restriction on salary increments, recruitments and promotions. iii. Action to directors and chief executive under Section 100, sub section (2) of Nepal Rastra Bank Act 2058 if capital position does not improve as per the prescribed standard in 6 months after initiating of action concerning the capital adequacy. (E) Where the capital adequacy ratio falls in excess of 8 percentage points below the prescribed minimum capital fund i. Actions required under clause (D). ii. Declare the bank as problem bank and initiate actions under Section 86 of NRB Act. iii. Initiate action towards cancellation of operating license of the bank/ financial institution or initiate liquidation process if adequate capital is not attained even after declaration as problem bank. Other actions under Nepal Rastra Bank Act 2058 and/or Bank and Financial Institutions Act 2063.

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