Nepalese Banking System and Structure

Nepalese Banking System

• The NRB regulates the national banking system and also functions
as the government’s central bank.
• As a regulator, NRB controls foreign exchange; supervises,
monitors, and governs operations of banking and non -banking
financial institutions; determines interest rates for commercial
loans and deposits; and also determines exchange rates of foreign
currencies.
 As the government’s bank, NRB maintains all government income
and expenditure accounts, issues Nepali bills and treasury notes,
as well as loans to the government, and determines monetary
policy.
 Commercial lending in Nepal is governed under the Bank and
Financial Institutions Act (BAFIA) of 2017 which updated the
earlier BAFIA of 2006, the Commercial Bank Act of 1974, and the
Finance Company Act of 1985, which previously governed
commercial lending. 
 Nepalese Banking System
• The BAFIA authorizes the NRB to issue guidelines to all
commercial banks and financial institutions on interest rates,
interest ceilings, and areas of investment.
• Three large state-owned banks still dominate the commercial
banking sector: Rastriya Banijya Bank (National Commercial
Bank), which is 100 percent government-owned, Nepal Bank
Ltd., which is 40.5 percent government-owned, and the
Agricultural Development Bank, also largely government-owned.
• Together these 3 state-owned banks still hold nearly 16% of total
banking assets and total deposits in the country. The first two, in
particular, also have a large number of non-performing loans.
 Nepalese Banking System
• In the 1980s, Nepal opened the commercial banking sector to foreign
participation. Since then, several joint venture banks have been
established including: Nabil Bank; Nepal Investment Bank; Standard
Chartered Bank; State Bank of India etc.
• As of Dec 2020, there were 27 commercial banks in operation,
including foreign joint-venture banks, 20 development banks, and 22
finance companies.
• Existing banking laws do not allow branch operation by any foreign
banks. All commercial banks have correspondent banking
arrangements with foreign commercial banks, which they use for
transfer and payment.
• In 1994, the government expanded the role of the Nepal Stock
Exchange by allowing private brokers to operate. The volume of
trading subsequently increased dramatically, but has since stabilized.
 First in Nepalese Banking System
• Nepal Bank Limited was the first commercial bank established in Nepal.
It was established on November 15, 1937 A.D. (Karthik 30, 1994 B.S.).
• Nepal Rastra Bank, the central bank of Nepal, was established on April
26, 1956 (Baishak 14, 2013).
• Rastriya Banjiya Bank was established on January 23, 1966 (Magh 10,
2022 B.S.).
• Agriculture Development Bank was established on January 21, 1968
(Magh 7, 2024 B.S.).
• Nepal Arab Bank (now Nabil Bank) is the first private sector (joint-
venture) bank of Nepal established on July 12, 1984 (Asad 29, 2041
B.S.)
• Nabil Bank Limited introduced the first credit card in Nepal in 1990
(2047 B.S.)
 First in Nepalese Banking System
• Himalayan Bank Limited introduced the first Automated
Teller Machine (ATM) in Nepal in 1990 (2052 B.S.)
• Himalayan Bank Limited first introduced tele-banking
(telephone banking) in Nepal.
• Kumari Bank Limited first introduced e-banking service in
Nepal in 2002 (2059 B.S.).
• Laxmi Bank Limited was first in Nepal to introduce mobile
(SMS) banking in 2004 (2061 B.S.).
• Mr. Himalayan Shumsher J. B. Rana was the first governor
for Nepal. He was appointed from April 26, 1956 to
February 7, 1961.
 Acts related to Nepalese Banking and Financial System

• Nepal Rastra Bank Act, 2002 (2058) was authenticated and

published on January 30, 2002 (Magh 17, 2058).
• Bank and Financial Institution Act (BAFIA), 2073
(2017) was authenticated on April 23, 2017 A.D. (Baishak 10,
2073 B.S.)
• Nepal Companies Act, 2063 (2006) was adopted on 
November 3, 2006 ( Karthik 17, 2063).
• Nepal Insolvency Act, 2063 (2006) was adopted on
November 20, 2006 ( Mangsir 4, 2063)
• Nepal Rastra Bank introduced Merger Bylaws 2068
B.S. included in article 177 of Companies Act 2063 and article
68 and 69 of BAFIA 2063 B.S.
 Structure of Nepalese banking System
Nepal Rastra Bank

Commercial Bank Micro Finance Finance Companies Development Bank

Productive
Nationalized Private Investment
Sectors

Industrial Agricultural
 Class Discussion
• How COVID-19 effects the situation of the
banking sector in Nepal 2020?
 Problems
 Solutions
Thank You