Development of Banking System in Nepal

Development of Banking System in Nepal

This post is about history and development of banking system in Nepal. Here we are trying to give you all the information about development of banking system in Nepal from the begging to present time.

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A bank is an institution, which deals with money and credit. It accepts depostis from the public and mobilized the fund to productive sectors. It also provides remittance facility to transfer money from one place to another. Generally, bank accpts deposits from business institutions and individuals, which is mobilized into productive sectors maily business and consumer lending. So bank is known as a dealer of money. At present context, bank is not only confined to accepting deposits and disbursing loan. In addition to this, a bank may be engaged in different types of functions such as remittance, exchange currency, joint venture, underwriting, bank guarantee, discounting bills etc. In this present context, bank is going to electronic banking system in Nepal. Most of banks of Nepal are featuring electronic banking system. They offer ebanking in Nepal, internet banking in Nepal, phone banking in Nepal, and mobile banking system in Nepal.

Development of Banking System in NepalAlthough it is said that development of banking system in Nepal was started in the reign of “Ranodip Singh” in the year 1933 B.S. He had established an office name “Tejarath Adda” in Kathmandu. It used to provide loans to the government officials and people against deposit of gold and silver. It has also extended its branches outside Kathmandu valley but this office has no right to accept deposit of public and it had no characteristics of modern bank.

The modern banking system in Nepal was started after the establishment of Nepal bank limited on 30th Kartik 1994 B.S. This step in banking sector is another major steps of development of banking system in Nepal. It was established under Nepal Bank Act 1994. It is first bank established in Nepal. However, this bank was established but maximum use of Indian currencies was not stopped in Nepal. This bank was given authority and responsibility of central bank of that time but within the change in time, of needed a separate central bank was seen. So, under Nepal Rastra Bank act 2012, Nepal Rastra Bank was established as central bank in Nepal on 14th Baishakh 2013. This bank was established with many objectives but mainly to stop maximum use of Indian currencies in Nepal and to increase the uses of Nepalese notes. Therefore, it first issued Nepali notes on 7th Falgun 2016. Its other functions were to stop dual monetary system, to keep stability in exchange rate of Nepalese currencies to encourage national industry by mobilizing the capital for development and to develop the all banking system in Nepal. This is the bank of government and bank of all other banks. In the course of time, according to recommendation of the Nepal Rastra bank, another commercial bank Rastriya Baniya Bank was established in the year 2022 under Banijya Bank Act 2021. In the same way, under the agriculture development bank act 2024, the agricultural development bank was established on 7th Magh 2024. This bank was established with the objective of increasing the life standard of the people who are involved in agriculture. The development of banking system was not satisfactory up to year 2040 B.S. No new bank was established during this period except the extension of branches of already established bank inside the country.

Nepal Arab Bank Limited was as first joint venture bank in the year 2041 B.S. under commercial bank act 2031 and company act 2021. This is another major phase of development of banking system in Nepal. Today this bank is popular by the name Nabil Bank limited. The second joint venture bank to be established in Nepal was Nepal Indosuez Bank in 2041. Today this bank is Nepal Investment bank limited. Similarly, in the year 2043, the Grind lays Bank limited was established as next bank and it is known today s standard charted bank Nepal limited. In this phase, several other banks were established as Himalayan Bank limited in 2049 B.S. Nepal SBI bank limited in 2050, Nepal Bangladesh Bank in 2051 and Everest Bank Limited, Bank of Kathmandu limited in the same year. Now a days there banks are known as leading financial institutions in Nepal. Today, there are four kinds of financial institutions established in categorized as “A’, “B”, “C” and “D”. Commercial Banks come on under Class “A” category, development banks come on under class “B” category. Similarly, finance companies come in class “C” category and micro finance development banks comes under class “D” category. There are many financial institutions established under different category and it is in the process of increasing. A part from these financial institutions there are rural development banks established in Nepal. In recent year Nepal Rastra Bank had opted merger, acquisition policy and financial institutions have merged and become one from two, and even one from three and many of financial institutions are in pipeline of merging.

Although, banks and financial institutions occupies more than 60% in Nepalese economy but the development of banking sector in Nepal is not said as satisfactory because these financial sector have target cities and populated areas only and not in rural areas. This is how modern banking system is running in Nepal.

This post titled ‘development of banking system in Nepal’ is send or submitted by guest writer Ramesh Shrestha, Kathmandu.  It is published as it is. Thanks to him.

Development of Banking System in Nepal

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Jitendra Sahayogee

I am Jitendra Sahayogee, a writer of 12 Nepali literature books, film director of Maithili film & Nepali short movies, photographer, founder of the media house, designer of some websites and writer & editor of some blogs, has expert knowledge & experiences of Nepalese society, culture, tourist places, travels, business, literature, movies, festivals, celebrations.

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