21 The function of Commercial Banks in Nepal with Role and Authority
This post is about the Function of Commercial Banks in Nepal. This post also includes functions, role, and authority of 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, which 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 the 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’ that means bench. The early years, people transacted their business at benches in the marketplace in Italy. When people failed in business their benches, (Banco) was broken up and the word bankrupt derived. The word bench, which was termed as “Banco” in Italy, was used, as Back” in the German language, “banke” in French and “bank” is England So, the word bank derived to this world.
See Also: Central banking system in Nepal
Summary of Bank Introduction
Therefore, 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 which 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 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 institution in 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 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 the 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 places for facilitating the customer by their services.in Nepal also, the government always come ahead for opening the branches in remote to an urban area. Cash revolution is only possible by the establishment and opening of bank everywhere. Cash can be only collectedin huge amount by the people of the nation through its channel. The country can only step up their growth with its help because it takes more courage and concusses about their growth.
That is why the commercial bank is always in the search of best places to expand their network or branch. Commercial banks mostly deal with all types of customer and always is always inclines to provides their best services to the customer. It has also the special features of clasping all the customer without analyzing and evaluating by dress up and faces. It does the full advocacy of national growth. As we know that the nations runs and forms the economic collection with the help of banks and their services. The government also plays a role to grasp the economic condition of a nation by its fluxion of money and creating scarcity. Commercial banks are the main pillar for making the economic growth increment and improvement that effects the national economic growth by its services, many people get chance to channel their condition and misery of life. That is why the commercial bank is commonly known as the financial institution which 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 highlights their earning from providing loans to the small businessman, merchant and industrialist and other class of people for various purposes. There also exist government commercial banks which explores the reason of establishment for national growth and people welfare but working mostly for collecting the higher profits which are exposed by their financial statement. A commercial bank in Nepal is operating their 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 bank of Nepal which are operating its luxurious services through their networks and channel to lower to higher class people.
- Nepal Bank (नेपालबैङ्कलिमिटेड)
- Rastriya Banijya Bank Limited (राष्ट्रीयवाणिज्यबैङ्कलिमिटेड)
- Agriculture Development Bank Limited (कृषिविकासबैङ्कलिमिटेड)
- Nabil Bank Limited (नबिलबैङ्कलिमिटेड)
- Nepal Investment Bank Limited (नेपालइन्भेस्टमेन्टबैङ्कलिमिटेड)
- Standard Chartered Bank Nepal Limited (स्ट्याण्डर्डचार्टर्डबैङ्कनेपाललिमिटेड)
- Himalayan Bank Limited (हिमालयनबैङ्कलिमिटेड)
- Nepal SBI Bank Limited (नेपालएस.बी.आई. बैङ्कलिमिटेड)
- Nepal Bangladesh Bank Limited (नेपालबङ्ग्लादेशबैङ्कलिमिटेड)
- Everest Bank Limited (एभरेस्टबैङ्कलिमिटेड)
- Kumari Bank Limited (कुमारीबैङ्कलिमिटेड)
- Bank of Kathmandu Limited (बैङ्कअफकाठमाण्डौलिमिटेड)
- Nepal Credit and Commerce Bank Limited (नेपालक्रेडिटऍण्डकमर्सबैँकलिमिटेड)
- Laxmi Bank Limited (लक्ष्मी बैङ्क लिमिटेड)
- Global IME Bank Limited (ग्लोबल आईएमई बैङ्क लिमिटेड)
- Citizens Bank International Limited (सिटीजन्स्बैङ्कइन्टर्नेशनल लिमिटेड)
- Prime Commercial Bank Limited (प्राइम कॉमर्शिअल बैङ्क लिमिटेड)
- Sunrise Bank Limited (सनराइज बैङ्क लिमिटेड)
- NMB Bank Nepal Limited (एनएमबी बैङ्क नेपाल लिमिटेड)
- NIC Asia Bank Limited (एन.आई.सि. एशिया बैङ्क लिमिटेड)
- Machhapuchhre Bank Limited (माछापुच्छ्रे बैङ्क लिमिटेड)
- Mega Bank Nepal Limited (मेगा बैङ्क नेपाल लिमिटेड)
- Civil Bank Limited (सिभिल बैङ्क लिमिटेड)
- Century Bank Limited (सेञ्चुरी बैङ्क लिमिटेड)
- Sanima Bank Limited (सानिमा बैङ्क लिमिटेड)
- Janata Bank Nepal Limited (जनता बैङ्क नेपाल लिमिटेड)
- Siddhartha Bank Limited (सिद्धार्थ बैङ्क लिमिटेड)
- Prabhu Bank Limited (प्रभू बैङ्क लिमिटेड)
Click here to see the total name list and detail of all the commercial banks in Nepal.
Types of commercial banks
There are many commercial banks in Nepal but have their capital right to a specific person only and they run the banks in their personal decision. But there also exist some of the banks which have other systems and man to circulate it. There are three types of commercial banks and they are:
Commercial banks also run under the instruction of a particular person because they have their capital investment. So in that commercial organization, the only particular person runs the whole bank because of their more percentage of investment. Individual and private business hold the large percent of share due to that, they do saw their sway in the institution. In Nepal also, there are many private sectors commercial banks like as Sanima bank, Prabhu bank, NIC Asia Bank, NCC bank, Everest bank and many other else. In all these banks, a large amount of capital investment is held by any individual and particular groups. The recruitment and selection of an employee for the vacant post are acted by nepotism rather select the best candidates. These banks mostly register the banks as a limited company to collect the more capital by announcing the share. Although, the decision making is done by some particular person.
Public sectors are the combination of capital by both parties that is the government and private sectors too. It is taken as the formation of both capitals which helps to stands in giants size. The government also invest their amount and capital to operate the banking sectors. In some sectors government self invest eth huge amount to makes the bank full in their own rights. This is also taken as governmental commercial banks due to a large part of the amount is invested by government. Mainly it is seen that the government hold the equity of 51% or more and the rest percentage of equity is held by private sectors. In it, all the systems are operated by the coordination and cooperation of both sectors through mutual meeting and suggestion or discussion. Such public sectors or governmental commercial banks are Agricultural development bank, Rastriya Banijaya bank, Nepal bank and other too.
It also defines the commercial banks which are established and operates under the instruction of foreign investors. The banks are operated under the investment of commercial banks because its investor is from outside the country Nepal. The decision and system are also operated according to them. It has its head office in some other country and operating its banking channel in other countries as multination companies. This is also taken as the foreign investment in Nepal. The foreign sectors commercial banks are Everest bank, SBI bank, Standard chartered bank, Nabil bank and other too. All the commercial banks deals for fulfilling the financial requirement of the public.
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 is furnished below:
1. Accepting the deposit:
It deals with the collection of deposit 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 personal accounts by giving the guarantees. In today time, a person does not want to keep the huger amount in their pocket or in their cupboard because of much offending expectations. People do not want to see anyone success and stepping upward. Commercial banks provide the trust to them and convince to deposit their amount in 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, Saving account. All the account have their different features. Bank provides interest of their depositing amount according to the account. Fixed account get high rates of interest than other, then saving account and current account. The current account has not any barriers of depositing and withdrawing of the amount because banks do not provide them the interest in 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 personal account according to their earning portion.
2. Providing the loans:
The next function of commercial banks is providing the loans to needy people it provides the loans to businessman, merchant, farmers and other too who demands. As 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 amount and providing loans amount is taken as the profit of bank including all the expenses. Loans are also provided in term wise that is short term, medium term loan, and long-term loan.
The term of the loan is classified according to the amount that he takes a loan. When there is bound made for paying the loan within or less that 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 medium loans. 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 loan define the period of time for repayment. Mostly the industrialist and merchant take the long-term loan because of their large network business and the short-term loan is taken by a small businessman. Where the short-term loan is mostly taken by Macro industrialist, farmers, and 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 is provided. Mostly it is estimated that bank provides only 40% of the loan after evaluating the value of assets for giving mortgage loan. The loan is given after the analysis of property of loan taken taking some days for analyzing.