Nepal – Banking

Nepal has 29 commercial banks,71 development banks, 46 finance companies, 41 micro-credit development banks,15 saving and credit cooperatives, and 27 financial intermediaries non-governmental organization (FINGO) licensed by Nepal Rastra Bank. The banking sector now provides banking services through approximately 3,838 branches.

NRB, Nepal’s central bank, licenses the principal sector institutions including commercial banks, development banks, finance companies, and micro credit development banks and other institutions. It also supports and is responsible for cooperatives and financial non-government organizations (NGOs) which it licenses to undertake a number of limited banking transactions. Finally, it also regulates savings and credit institutions.

According to function and nature of bank in Nepal, Banks are classified in following types:-
1)Central Bank
2)Commercial Bank (Class A)
3)Development Bank (Class B)
4)Finance Companies (Class C)
5)Micro Credit Development Bank (Class D)

1)Central Bank:- The Nepal Rastra Bank (NRB) was established in April 26, 1956 A.D. as a Central bank of Nepal to supervises the banks and financial institutions (licensed by the NRB) in Nepal and guides monetary policy. Nepal Rastra Bank was established in 1956 under the Nepal Rastra Bank Act, 1955, to discharge the central banking responsibilities including guiding the development of the embryonic domestic financial sector. Since inception, there has been a significant growth in both the number and the activities of the domestic financial institutions.

2)Commercial Bank (Class A):-A Commercial bank is a type of Bank / Financial Institution that provides services such as accepting deposits, making business loans, and offering basic investment products. Commercial bank can also refer to a bank, or a division of a large bank, which more specifically deals with deposit and loan services provided to corporations or large/middle-sized business – as opposed to individual members of the public/small business – Retail banking, or Merchant banks. At present there are 29 Commercial Bank in Nepal.

3)Development Bank (Class B):-The bank which is established for the development of different sectors like industrial, agricultural, infrastructural etc by imitating the modern system and methodology through financial, technical and administrative assistance is known as development bank. Development banks in Nepal are playing vital roles for the development of economy status of Nepal.  Nepal has many nationalized and private banking. There are 71 development banks in Nepal.

4)Finance Companies (Class C):-The history of financial institutions is not very old. When banking sector started carrying out current activities of finance company, large number of finance companies was established and they expanded at a rapid pace in the developed countries, UK and USA in 1960.  In the context of Nepal, there were few insurance companies and Karmachari Sanchaya Kosh working as non-banking financial institution before enactment of Finance Company Act, 2042. Need of Finance Company Act was felt because unauthorized sector was collecting savings from the common public in the name of Upahar and Dhukuti programmes. People showed great interest and enthusiasm in these programmes but they were cheated by most of the organizers of these programmes. Considering peoples’ interest in such programmes, benefit of mobilizing such savings in productive sector, banking sectors’ inability to carry out capital market activities and to meet consumers’ need for credit, government felt the need of finance companies and introduced Finance Company Act, 2042. However, no finance company set up till 2049 because the act came into being only in 2049 with some amendments.At Present there are 46 Finance companies in Nepal.

5)Micro Credit Development Bank (Class D):- Nepal is a land locked developing country. Many people (38%) of Nepal are under poverty region. Most of the poor people lives in rural areas and have little opportunity. Micro finance (Micro Credit Development Bank) could help poor people who do not have any collateral, but a willingness to work and a desire to do some business activities from which He/She will acquire employment as well as income. At present there are 41 Micro Credit Development Bank in Nepal.