Kathmandu. Nepal's banking sector is in turmoil following a Supreme Court ruling that any Chief Executive Officer (CEO) or director who has received even a routine "warning" or "caution" from the central bank is automatically disqualified from holding their position for five years.

The ruling is based on a strict interpretation of the Bank and Financial Institutions Act (BAFIA), 2073, and threatens the positions of dozens of senior banking executives.

A Supreme Court verdict has thrown the positions of dozens of chief executive officers (CEOs) and directors of banks and financial institutions into uncertainty, prompting bankers to prepare a petition seeking a review of the decision.

After consultation with Nepal Rastra Bank (NRB), the Nepal Bankers' Association on Tuesday decided to file a vacate petition against the court's ruling which automatically disqualified CEOs and directors if they faced disciplinary action.

"The Supreme Court's decision appears to affect most banks and financial institutions," said association president Santosh Koirala. "We will seek NRB's opinion before proceeding further."

The verdict was issued by a division bench of Justices Dr. Nahakul Subedi and Nrip Dhwaj Niraula in response to a writ petition filed by advocate Madhu Kumar Chaulagai. The petition sought removal of directors and CEOs from several banks, including Prabhu Bank, Global IME, Himalayan Bank, Nabil Bank, NIC Asia Bank, Kumari Bank, Prime Commercial Bank, Garima Development Bank, and Reliance Finance.

Although the petition named these banks, none have yet dismissed their CEOs or directors. Some of the executives mentioned, including those at NIC Asia, Global IME, and Nabil, have already retired.

Under the Constitution, the Supreme Court has the authority to review its own verdicts or final orders, but such reviews are conducted by a larger bench excluding the judges who issued the original ruling.

On December 4, 2024, the Supreme Court ruled that CEOs and directors who had faced disciplinary actions such as warnings or cautions from NRB would be automatically disqualified from holding office. The court interpreted provisions of the Banks and Financial Institutions Act (BAFIA), 2016, to mean that once NRB takes action against an official, that person becomes ineligible to continue in their role.

The decision has caused ripples across the banking sector, as NRB had previously treated warnings and cautions as routine administrative measures rather than grounds for dismissal. Sources at NRB said that if the ruling is enforced, more than two dozen CEOs and directors could lose their positions.