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Banking offense refers to any unlawful or fraudulent act committed in relation to banking and financial institutions. The government introduced this law to enhance public trust in the banking system by minimizing risks and controlling misconduct. The Act came into force on 2064/10/23 BS and was amended on 2073/04/18 BS. Chapter Two of the Act outlines various offenses in detail and aims to ensure transparency and accountability in the financial sector.
Unauthorized Account Handling and Use of False Documents
This provision restricts individuals from opening or allowing others to open accounts using fake or misleading documents. It also criminalizes knowingly issuing cheques from accounts that lack sufficient funds.
Key offenses include:
Opening accounts with forged or false documents
Creating accounts under fictitious names
Drawing cheques from accounts without an adequate balance
These rules strengthen the legal framework to discourage fraud in basic banking operations and build customer confidence.
Illegal Access and Issuance of Cheques or Bank Statements
Another critical offense under this Act is gaining unauthorized access to cheques, checkbooks, or bank statements of others. Even giving someone else’s cheque or statement to a third party without proper consent is considered a punishable act.
Pointers:
Accessing another person's cheque/checkbook without consent
Misleading others into handing over bank documents
Issuing statements or instruments without written authorization
With growing digital dependency, the Act’s enforcement ensures client confidentiality and reduces identity-based fraud.
Unauthorized Withdrawals and Illicit Transfers
The Act prohibits any form of unauthorized withdrawal, especially from other people’s accounts. Acts such as stealing cheques, making false transfers, and using counterfeit payment instruments are considered serious offenses.
Examples include:
Withdrawing money from someone else's account without permission
Using fake drafts, bills, or cheques to receive payments
Transferring funds fraudulently from customer accounts
Modern banking now includes systems like fraud monitoring and two-factor authentication to help implement these rules effectively.
Misuse of Digital Tools and Electronic Transactions
Given the rise of digital banking, the law emphasizes the proper use of electronic means such as credit cards, ATMs, and mobile wallets. Any abuse or unauthorized use of these tools is punishable under the Act.
For instance:
Recent updates and guidelines from Nepal Rastra Bank support these laws by encouraging secure fintech practices.
Improper Loan Approval and Disbursement
Misrepresentation during the loan approval process is a major issue addressed by the Act. This includes submitting fake business data, inflating collateral value, and disbursing loans beyond approved authority.
Common offenses:
Using fake financial reports to secure loans
Overstating project costs to borrow extra
Reusing collateral across multiple loans without release
Stricter regulations and inspections are now helping to uncover such fraud in loan portfolios.
Diversion and Misuse of Credit Facilities
The credit you receive must be used for its stated purpose. The Act considers it an offense to misuse credit or allow others to use it inappropriately.
Some key violations include:
Using business loans for personal luxury expenses
Diverting credit to unrelated businesses
Lending borrowed funds illegally to others
This provision ensures that financial aid is not misdirected, which is vital for economic discipline and credit risk management.
Misappropriation of Banking Resources
This clause targets insiders—such as directors, shareholders, or employees—who misuse bank assets for personal gain. It also covers irregularities during asset auctions or sales.
Relevant breaches:
Employees availing personal loans through manipulation
Close relatives of officials benefiting unlawfully
Fraud in non-banking asset transactions
Internal audits and whistleblower protections now play a stronger role in identifying and deterring such internal offenses.
The Broader Significance of the Act
This Act is not only punitive but also preventive. It establishes a clear structure to penalize fraud, maintain discipline, and ensure fair conduct in the banking sector. It supports Nepal’s international commitments to financial transparency, including Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT).
The government’s consistent amendments and enforcement efforts reflect the growing importance of safe and ethical financial practices in a modern economy.
Strengthening Financial Trust and Stability
The Banking Offense and Punishment Act, 2064, remains a foundational tool in safeguarding Nepal’s financial integrity. With an evolving banking landscape, digital innovations, and rising public expectations, the Act ensures accountability, deters misconduct, and strengthens public confidence in the nation’s banking institutions.
Disclaimer:
This article is intended solely for informational purposes and should not be interpreted as legal advice, advertisement, solicitation, or personal communication from the firm or its members. Neither the firm nor its members assume any responsibility for actions taken based on the information contained herein.