This post is about the Function of Commercial Banks in Nepal. This post also includes the functions, roles, and authority of a commercial bank in Nepal.

Before going to the topic function of Commercial Banks in Nepal, Let’s discuss first what is a bank?

Introduction of bank

A bank is an organization, that deals with money and credit. The bank may be a company, firm, business, organization, or person, which is involved in lending and borrowing activities. In the modern term, we can not say that bank activities are limited to just borrowing and lending. This is a very primitive concept.

In modern concept, the bank is an institution that deals in monetary transactions. Monetary transactions mean dealing with money and credit. It accepts deposits from different sectors in different accounts and provides loans of different types to the needed sector.

Some definitions of the bank from experts:

According to R.S. Sayers, “a bank is an institution whose whole debts are widely accepted in settlement of other people’s debts.”

In the words of Crowthese, “the banker business is to take debts of other people to offer his own in exchange and thereby create money.”

According to Horace white, ‘bank is manufacturer of credit and money so facilitating exchange.”

Origin of the word “bank’

The word bank is derived from the Italian word ‘Banco’ which means bench. In the early years, people transacted their business on benches in the marketplace in Italy. When people failed in business their benches, (Banco) were broken up and the word bankrupt was derived. The word bench, which was termed “Banco” in Italy, was used, as Back” in the German language, “banke” in French, and “bank” in England So, the word bank is derived from this world.

See Also: Central banking system in Nepal

Summary of Bank Introduction

Therefore, a bank means ‘a financial institution which accepts deposits gives a loan, exchange or issue money, performs financial functions, control credit and perform agency functions.

Introduction of Commercial bank

Commercial banks are an institution that accepts deposits, makes business loans, and offers related services. Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit. These institutions are run to make a profit and are owned by a group of individuals.

In Nepal, Nepal Rastra Bank is the central bank of Nepal. Nepal Rastra Bank, the governing body of banking and financial institution has categorized the bank and financial institutions into four distinct categories. i.e. ‘A-Class, ‘B’ Class, ‘C’ class, and ‘D’ class institutions. Commercial banks are categorized under A-class banks in Nepal. These categories of banks in Nepal differ according to the capital and service provided by them.

 A commercial bank is taken as the backbone of eth nation as well as the helping hands of the National bank. When we talk about the commercial banks of Nepal, there are altogether many banks having many branches. Commercial bank mostly plays the role of supporting the economy by investing a huge amount through their different function they give the services of various helps to the person of the nation for promoting their living standard.

When people get to connect with a commercial bank, they get the chance of improving their standard of life.  Commercial banks are also the moving parts of the nation that stands out in every remote to Urban place for facilitating the customer with their services.in Nepal also, the government always comes ahead for opening branches in remote urban areas.

Cash revolution is only possible by the establishment and opening of banks everywhere. Cash can be only collected in a huge amount by the people of the nation through its channel. The country can only step up its growth with its help because it takes more courage and concusses in its growth.

That is why the commercial bank is always in the search of the best places to expand their network or branch. Commercial banks mostly deal with all types of customers and always is inclined to provide their best services to the customer.

It has also the special features of clasping all the customers without analyzing and evaluating by dress up and faces. It does the full advocacy of national growth. As we know that the nations run and form economic collection with the help of banks and their services.

The government also plays a role to grasp the economic condition of a nation through its fluxion of money and creating scarcity. Commercial banks are the main pillar for making the economic growth increment and improvement that affects the national economic growth through its services, many people get the chance to channel their condition and misery of life.

That is why the commercial bank is commonly known as the financial institution that deals with the motto of accepting deposits, announcing loans, granting welfare services if needed, and other relevant services too.

According to Culbertson,—“Commercial Banks are the institutions that make short make short-term bans to business and in the process create  money.”  If we highlight the other role of the commercial bank then we can see that it is mostly based on profit motives.

The commercial bank is organized and opened with the themes of earning the profit least for welfare and socialization objectives. Commercial banks in Nepal mostly highlight their earnings by providing loans to small businessmen, merchants and industrialists, and other classes of people for various purposes.

There also exist government commercial banks which explore the reason for the establishment of national growth and people’s welfare but work mostly for collecting the higher profits which are exposed by their financial statements. A commercial bank in Nepal is operating its services w by many channels from urban to rural by their different services.

Total number of commercial banks in Nepal

There are 28 commercial banks in Nepal. Here is the list of grade commercial banks of Nepal which are operating their luxurious services through their networks and channel to lower to higher class people.

1. Nepal Bank (नेपालबैङ्कलिमिटेड)
2. Rastriya Banijya Bank Limited (राष्ट्रीयवाणिज्यबैङ्कलिमिटेड)
3. Agriculture Development Bank Limited (कृषिविकासबैङ्कलिमिटेड)
4. Nabil Bank Limited (नबिलबैङ्कलिमिटेड)
5. Nepal Investment Bank Limited (नेपालइन्भेस्टमेन्टबैङ्कलिमिटेड)
6. Standard Chartered Bank Nepal Limited (स्ट्याण्डर्डचार्टर्डबैङ्कनेपाललिमिटेड)
7. Himalayan Bank Limited (हिमालयनबैङ्कलिमिटेड)
8. Nepal SBI Bank Limited (नेपालएस.बी.आई. बैङ्कलिमिटेड)
9. Nepal Bangladesh Bank Limited (नेपालबङ्ग्लादेशबैङ्कलिमिटेड)
10. Everest Bank Limited (एभरेस्टबैङ्कलिमिटेड)
11. Kumari Bank Limited (कुमारीबैङ्कलिमिटेड)
12. Bank of Kathmandu Limited (बैङ्कअफकाठमाण्डौलिमिटेड)
13. Nepal Credit and Commerce Bank Limited (नेपालक्रेडिटऍण्डकमर्सबैँकलिमिटेड)
14. Laxmi Bank Limited (लक्ष्मी बैङ्क लिमिटेड)
15. Global IME Bank Limited (ग्लोबल आईएमई बैङ्क लिमिटेड)
16. Citizens Bank International Limited (सिटीजन्स्बैङ्कइन्टर्नेशनल लिमिटेड)
17. Prime Commercial Bank Limited (प्राइम कॉमर्शिअल बैङ्क लिमिटेड)
18. Sunrise Bank Limited (सनराइज बैङ्क लिमिटेड)
19. NMB Bank Nepal Limited (एनएमबी बैङ्क नेपाल लिमिटेड)
20. NIC Asia Bank Limited (एन.आई.सि. एशिया बैङ्क लिमिटेड)
21. Machhapuchhre Bank Limited (माछापुच्छ्रे बैङ्क लिमिटेड)
22. Mega Bank Nepal Limited (मेगा बैङ्क नेपाल लिमिटेड)
23. Civil Bank Limited (सिभिल बैङ्क लिमिटेड)
24. Century Bank Limited (सेञ्चुरी बैङ्क लिमिटेड)
25. Sanima Bank Limited (सानिमा बैङ्क लिमिटेड)
26. Janata Bank Nepal Limited (जनता बैङ्क नेपाल लिमिटेड)
27. Siddhartha Bank Limited (सिद्धार्थ बैङ्क लिमिटेड)
28. Prabhu Bank Limited (प्रभू बैङ्क लिमिटेड)

Click here to see the total name list and detail of all the commercial banks in Nepal.

Functions of a commercial bank in Nepal

Commercial banks deserve their role in more portion to conduct their system. There are many functions of the commercial bank which are furnished below:

Primary function:

1. Accepting the deposit:

It deals with the collection of deposits which is its first function. The banks also do not have the entire amount as it also collects the amounts for further purpose. The amount collected is deposited into their accounts by giving guarantees.

In today’s time, a person does not want to keep the huger amount in their pocket or their cupboard because of many offending expectations. People do not want to see anyone succeed and step upward. Commercial banks provide trust them and convince them to deposit their amount on a daily, monthly, and weekly basis however you get easy.

The amount is deposited into three accounts having three objectives and three features: Fixed account, Current account, and Saving account. All the accounts have different features. Bank provides the interest of their depositing amount according to the account.

Fixed accounts get high rates of interest than other, saving accounts and current accounts. The current account has not any barriers to depositing and withdrawing the amount because banks do not provide them the interest in a high portion.

But in a fixed account, there are barriers of time for withdrawing the deposited amount according to an agreement because it provides you a large percentage of interest. Many people earn and deposit their amount portion in their account according to their earning portion.

2. Providing loans:

The next function of commercial banks is to provide loans to needy people it provides loans to businessman, merchant, farmers, and other too who demands. As the bank collects the deposit, they are invested as loans into the market to gain profit.

The difference between the interest rate that they pay in depositing the amount and providing the loan amount is taken as the profit of the bank including all the expenses. Loans are also provided for term wise that is short-term, medium-term loan, and long-term loans.

The term of the loan is classified according to the amount that he takes a loan. When there is a bound made for paying the loan within or less than one year then it is taken as a short-term loan. If the contraction is done for paying the loan in less than 3 years then it is a medium loan. Its loan amount is higher than a short-term loan.

And the high terms loan is repaid in and above  5 years. The amount and portion of the loan define the period for repayment. Most industrialist and merchant take long-term loan because of their large network business and short-term loan is taken by the small businessman.

Where the short-term loan is mostly taken by  Macro industrialists, farmers, and the handicraft industry. the loan is given on the base of the mortgage. The mortgage is evaluated first and then only on the base of it, the loan provided. Mostly it is estimated that the bank provides only 40% of the loan after evaluating the value of assets for giving a mortgage loan. The loan is given after the analysis of the property the loan takes taking some days for analysis.

Secondary functions

3. Overdraft facilities

It means that some of the eths trusted customers are given the facility of withdrawing amount more than the deposited amount in their account. The facilities are given only to reliable customers who are doing their transactions for a long time.

This facility is not given for the long-term, it is the facilities of short time provided in case of urgency. After giving these services, the bank charges some interest and even deducts from the account holder’s account after taking these services. These facilities decrease the problems and hazard of money to the customer for some time to get rid of that critical situation.

4. Bills of exchange:

This is also one of the honorable services which banks always look in active mode to help the coming customers. Bills of exchange are even done before their maturity period to make easy communication and transaction with the customer.  Bank retakes the amount from the party who had accepted the bills of exchange.

Bank pays the stipulated amount of bills to the holder after d deducting some of the commission for giving services. It is the service of reducing the mental burden of the customer. Moreover, bills of exchange are referred to as promising bills where the promise is made to pay the amount of money after some time or maybe in demand or according to the instruction and agreement that the bills expose.

5. Agency functions:

This is also one of eth measure functions of commercial banks which are taken as the major strength of the commercial banks. This service gives easiness and does not let them tense and or dragged into the maze. After paying these services to the customer, the bank charges some amount as a commission from their customer or clients. Some of the major agency functions are :

6. Remittances:

This is the major function of sending and receiving the money from the third part from far distances. Many clients receive the money from a foreign country and even some sent it from a domestic country.

Transfer and receipt of money from one country to another country and even in native lands from place to place is called remittance. Moreover, the banks provide the services of transferring the funds directly into respective person’s accounts by different mediums like drafts, mail transfers, and so on.

7. Acceptance and payment of different items:

Its main function also deals with the collecting of many bills like cheques, dividends, bills, other periodical receipts, rents, exchange bills, discounting bills, offers letters, etc. on the request and instruction of customers. The customer also wants to solve all the extra problems with the help of the bank if possible.

To deal with that, the bank provides the services of paying the electricity bills,  telecommunication bills, recharge, insurance premium, and other taxes on behalf of the customer’s request and instructions.

8. Purchase and sale of securities:

Commercial banks also solve the problems of buying and selling stocks, shares, and debentures. Most organization do their transaction through commercial banks for reliable trust.

Both private and government sector do their works of buying and selling stocks, shares, and different papers by the bridges of commercial banks for making trustable transactions having proof. When any private or governmental organization havehas the necessity of equity of capital, then they use the road of commercial banks by announcing the number of shares instructing paying the amount through commercial banks.

9. Services of foreign exchange:

The rate of foreign currency and the domestic currency is determined by the Nepal Rastra bank but it is transacted through some other banks. When people from foreign come to Nepal, they have to change their money into Nepalese money at that time they use the commercial bank for exchanging the money. Commercial banks convert their money into Nepalese money for making their visit and landing in Nepal easily. Commercial banks also charge a commission after giving these services too.

10. Trustee and Executor:

Commercial banks are also taken as a friend of the customer because they do not keep anything confidential that will harm the customer’s rights. commercial banks do their dusty very neatly and as trustees.  When people make some mistakes, they are even taught and make them understand the relevant issues.

In the same case, when the person gets out of contact and transaction for a long time, what types of accounts are checked and informed for keeping it in active mode. if the account is not transacted for six months, they become passive. Moreover, when some account holder dies, the amount in their account is given to the beneficiary person whom he or she has referred.

11. Acts as a tax consultant:

Commercial banks also give the consultation to their reliable customer and mostly to great trader who deals with large transaction about tax payment and process of doing it neatly and cleverly.  It provides the instruction, advice, process, and laws relating to it to make the clients more clear about the policy.

12. Letter of references:

This is also the additional function of commercial banks that it facilitated. Banks provide information about the amount that is in their account even from direct or indirect contact. Bank has started the new model’s services for making the customer satisfied and protecting them.

For making these services better, now the bank has operated its services in SMS mode. The customer gets a notification through the message of their deposited and withdrawn amount after the transaction. This service is also taken as the pleasuring servicing to get connected and informed about the amount of account.

Utility functions

13. Locker facilities:

The commercial bank also provides a locker facility to their reliable and good character customers. Most people do not want to keep expensive jewelry, ornament, and valuable articles or papers at home considering security purposes.

The customer wants to keep it all safe in safe places. Banks are the most secure places to keep all things safely in lockers. The customer provides their locker and their key where they keep all their valuable materials. For these services also, they charge a commission. Banks also provide loans on the base of gold. In that case, also, the customer uses this locker service.

14. Traveler cheque:

By keeping the consideration of customer safety in the journey, the bank is providing the traveler cheque for a safe journey many times we have faced unexpected problems because of cash loot, theft, or pickpocketing. These kinds of crimes are normally happening with the customer during their long journey.

And this issue makes them irritating and sad in their journey due to their empty wallet and empty pockets. So commercial banks provide traveler cheques as a card that avoids the tension of carrying cash in the pocket which arises the mental pressure throughout the journey.

15. Letter of credit:

This is also the more effective function of customers in which banks work as the mediator of paying the amount to the third party after instructing a letter of credit. Bank pays the amount to the third party after the agreement and instruction of the account holder. This is mostly done to communicate with foreign trade. The foreign trader is paid money directly by the bank by standing as a guarantee on behalf of the first party.

16. Underwriting the securities:

Due to having the largest network and reputed image in the nation by its size and services, it is also taken as a reliable and faithful financial institution. Securities are announced by its medium because the public or common people mostly believe in them.

17. Creation of money:

Commercial banks collect the money from large groups mostly from commerce, industrialist and provide them with loans. The difference between the deposits made by them and the loan taken by them has a large gap.

People commonly deposit a small amount of money into their account but takes a huge amount from the money after depositing the money of many people, it forms a large amount of cash which is used to provide loans to a needy person. This is also the way of creating money through various deposits.

18. ATM banking:

Commercial banks are also famous for giving these services in places to places mostly in crowded areas and emergency areas like hospitals, supermarkets, malls, etc.  Nowadays the youth are updating themselves with a change in technology and time.

People of today also want to make their work terminated within a few time because of their busyness. They do not want to stand in a queue in banks of withdrawing and depositing the amount. Thus, banks provide the ATM card to the customer who demands it and charges some amount annually.

19. MASTER CARD:

This is also the invisible function of commercial banks because this service is taken by a few people only mostly by the  VIP person. The richest person or great businessman who makes traveling around the world and other countries mostly keeps it in their wallet.

A master card is also called the international card which is used for withdrawing money from a bank or ATM anywhere without limits of the territory. Normally, it is also called a universal card because we can use it anywhere. the giving of this kind of service upgrades the value and increases the appreciation of commercial banks.

Instead of giving these services, banks charge some money as commission. Master card provides the license for using this card anywhere in the world for their easiness. More withdrawing money anywhere in the world, there must be the amount in the account.

20. Internet banking:

It is also the function of commercial banks that develops the trust of the customer without reaching offices. Nowadays a person is busier and wants to compete for their task by sitting on the chair. That is why the bank is trying to give more and more standard and dynamite services for protecting the customer and keeping in touch. Customer also runs to that institution that transforms their bunches of work into small or easier.

Internet banking is such a service that reduces the pressure of sending money to anyone departing the offices. A person can send their money to anyone’s account directly by themselves and also know about the personal amount and account details. This service increases the happiness of customers because of their self-control of the c account.

They can view their account anytime and know about the transaction for these services, the customer has to notice and request to provide it. Instead of taking these services, banks c also charge very few amounts and even some do not charge. It is operated and can be conducted only if the connection is linked with an internet browser.

21. Treasury bill:

It is also colloquially called T-bills which is one of the major instruments to make the economic condition of the nation stable. T- bills are announced by the government for collecting money when there occurs a crisis in the economy.

By the via of T- bills, the government collects a huge amount from the public of the country and invests in da different sectors to balance the condition. T-bills are also taken as the short-term loan taken by the government. It is mostly announced in a time-critical situation even government has no anyway and has no money in it’s their hands.

The government borrows from the public and again returns it with interest. It has a period of six months and can be exceeded to one year but not more than that. When the government announces the T-bills, the public invests their amount indirectly through the commercial banks for belief and trust. Public care gave the draft as proof of payment.

They return the amount with interest in calculating the period used by the government. But the government gives very few interest rates.

Summary of Function of Commercial Banks in Nepal

Its function and capital classify its category that Nepal RastraBank has divided and ranked. According to Nepal Rastra Bank, for getting an ”A” grade commercial bank, the bank should have a capital of 8 billion rupees, and for ”B” grade, they should have 2 billion rupees. Similarly, for the ”C” grade they should have 60 Crore, and for the ”D” grade,  they must have 20 Crore capital.

In Nepal, if we talk about the branch expansion among all the commercial banks then, the first number is held by the agriculture development bank, and then the other is a partial government financial institution.

According to the reports and data of Nepal Rastra Bank, there exist presently in Nepal 28 ”A” grades bank. It was first before two years ago 32 in number but after merging it comes to 28. and the ”B” grade banks exist in the number of 40 and grade  ”C” exist in the number of 32 and ”D” grade banks in Nepal exist in several 46.

We can also say that there is the existence of a banking revolution in Nepal by looking at the area of Nepal and the number of banks. Although, a small country, there is no scarcity of banks anywhere in Nepal which may be the Hilly, Himalayan, and Madhesh regions.

For best analysis,  ”A” grade banks in Nepal are performing their best and active role to deny all the obstruction of national growth, and others are working as helping hands. ”A” grade banks are directly linked with the national bank because having large capital and are heavyweight.

It is also acceptance and belief that where there is the establishment of banks there is the best development in every sector. There are no people who can singularly establish and long project without taking any help from the bank. the government also takes the help of a commercial bank to become safe from economic crisis and inflation.

Nepal bank is taken as the first bank which has planted the seed of a banking institution in 1995 B.S. for the themes and thinking of healing the growth of the nation by reaching everywhere.

As we, all know that finance is the lifeblood of trade, commerce, and industry. Nowadays, the banking sector acts as the backbone of modern business. We also know that the central bank of the country issues notes and currencies for exchanging purposes. Likewise, the basic functions, roles, the authority of Commercial Banks in Nepal are as follows:

1. Commercial Banks accept deposits from different people and organizations. Banks allow for opening three types of accounts to accept deposits from customers i.e. current, saving, and fixed deposit accounts.
2. Commercial Banks provides different types of loans to peoples, organizations, business houses, etc. the amount of loan given to these peoples, organizations, and business houses depend upon the collateral provided.
3. Commercial Banks provide a letter of credit and guarantee facilities, which boosts international trade.
4. Commercial Banks provide locker facilities to customers for the safekeeping of valuable documents and precious articles.
5. Commercial Banks provide various card services like debit cards, credit cards, and ATM card that avoids risk in carrying money.
6. Commercial Banks provide services like the clearing of cheques and perform various ageagenciesnctions like discounting bills of exchange, transferring funds, paying house rent, telephone bills, etc.
7. Commercial banks provide easy payment and withdrawal facilities to their customers in the form of cheques and drafts. It also brings bank money into circulation. This money is in the form of cheques, drafts, etc.