What it is
The general reserve is a safety cushion that the law forces banks to build. It cannot be spent or paid out without Nepal Rastra Bank's approval.
The Bank and Financial Institution Act (BAFIA) 2073, section 44, says a bank must put at least 20% of its net profit into this fund each year until the fund is twice the paid-up capital. After that, at least 10% a year.
It counts as core capital, so a bigger general reserve helps the capital adequacy ratio.
How it is calculated
Opening general reserve + at least 20% of the year's net profit (10% once the fund equals twice paid-up capital). The transfer is made at year end.
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL's quarterly statement does not print the general reserve on its own; reserves appear as one block, and the breakdown is in the audited annual report. The rule still applies: from the FY 2082/83 net profit of Rs 790.58 crore, at least 20%, about Rs 158.12 crore, moves into this fund at year end.
What good looks like
It grows every profitable year. The share of profit that cannot be paid out is at least 20%, so distributable profit is always well below net profit.
Watch out
- The 20% transfer happens at year end, so Q1 to Q3 figures do not show it yet.
- This reserve is not available for dividends, even though it is part of equity.
- Bonus shares cannot normally be paid from the general reserve without NRB consent.
In Nepal
BAFIA 2073 §44: at least 20% of annual net profit to the general reserve until it equals double the paid-up capital, then at least 10%; amounts in the fund may not be invested or transferred elsewhere without NRB approval.
Questions
To build a cushion that protects depositors in bad years. It is deliberately out of shareholders' reach.
Yes. It is part of core (Tier 1) capital under NRB's framework.