Nepalese Banks

8/11/2019 Nepalese Banks

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1.1 General Background

1.1.1 Meaning of Bank

A Bank is an organization whose primary functions are concentrated with

accumulation of idle money from General public and advancing loan to individuals,

traders industries and business houses for expenditure. Generally the bank collects money

from those who have spare of it from their income on which it pays interest regularly.

The money thus accumulated can be invested different sectors such as business, foreign

trades, agricultures industry and social works for which it charges certain percentages of

interest which is higher than interest paid by the bank to accumulated fund. Such charges

on advancing loan is the major revenue sources of the bank by which it can bear

administration expenses incurring in the process of operating its activities. Thus the bank

is a good mediator between depositors and loan takers.

To know the precise and clear meaning of bank, some experts definition can be

given. Chambers twentieth century dictionary defines a bank as an Institutions for

keeping, lending and exchanging etc. of money.

According to Crowther A banker is a dealer in debts. The bankers business isthen to take the debts of other to people, to offer his own in exchange and thereby to

create money.

According to World Bank, Banks are the financial institutions that accept funds

in the form of deposit repayable on demand or short notice.

Therefore a bank is a financial institution, which collects deposits and in turn

provides loans by creating credit. Today banking is such a vague tern, it does a lot more

then deposits and credit like remitting money, issue of money guarantee, letter of credit,

controlling, payment, other agency functions, monetary activity of country etc. are also

the major function of bank. This multiplicity of bank service and function has led to a

bank being labeled financial supermarket.


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1.1.2 Origin and Evolution of Banks:

There is no unanimity among the economists about the origin of the world

banking the term bank derives from the Italian World Bank which refers to the bench on

which the banker would keep its money for lending and exchanging. Some person tract

its origin from the Latin word Bancus which refers to the bench on which the banker

would keep its money and his record it is believed that the ancestors of modern banking

system were merchants goldsmiths and money lenders. Modern banking showed its seed

in the medieval Italy despite strong Christian prohibitions against charging interest.

The first banks called the banks of Venice were established in Venice Italy in

1157A.D to finance bank of Genoa was establish in 1401and 1408 respectively. After

that bank of Amsterdam was established in 1609A D when the bank of England was

established in 1940 it played the vital role for the development of modern banking

system. After its establishment banks spread all over the world.

1.1.3 Banking history in Nepal

In the context of Nepal like as in other country the goldsmiths and landlord was

the ancient banker. The Nepalese people were highly exploited by Shahu Mahajan by

charging higher interest rate compound interest rate and even by manipulating the

principal amount .if we try to see the history of banking transaction in depth evidence of

money lending function are found in practice before 8th

century. In 780 B.S.

Gunakamadev the ruler of Kathmandu reconstructed Kathmandu valley by borrowing

debt from the people .14th

century Tanka dhari system had been running .in the period of

Ranodip Singh in Kathmandu established an office called Tejarath Adda from this office

the government distributed salary t0 their employees and provided loans to government

employment @ 5% of interest against the security of gold sliver etc.

Because of the development of economic activities in Nepal the above institution

could not be fulfilled the need of people so in Kartik 30, 1994, BS Nepal bank limited

was established as one of the semi government commercial bank which had 10 million

authorized capital and 842000 paid of capital .it has done the pioneering function in


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spreading the banking habits among the people. Having felt a need of central bank to

control and direct the commercial bank and help the government for making monetary

policies Nepal Rastra Bank was set up in 14 Baisakh 2013 B.S after 19 years.

To fulfill the growing credit requirement of the country the commercial bank

Rastriya Banijya Bank was establish in 10th

Bhadra 2022B.S Rastriya Banijya Bank is

also to provide facilities for the economic welfare of the general public. Nepal is an

agriculture country to develop agriculture system and industry agriculture Development

Bank and Nepal Industrial Development Corporation was established in 2024BS and

2016 BS respectively.

In the context of banking development, the 1980s saw a major structural change

in financial sector policies, regulations and institutional developments. The initiation of

the financial sector liberalization policy by Nepal Rastra Bank a board of joint venture

banks entered with the view to accelerate the race of development of nation. Government

emphasized the role of the private sector for the investment in the financial sector. With

the adoption of the financial sector liberalization by the government in 80's opened the

door for foreign Banks to open Joint venture Banks in Nepal. As a result, various banking

and non-banking financial institutions have come into existence. Nabil Bank Limited, the

first foreign joint venture bank of Nepal, started operations in July 1984. During twodecades, Nepal witnessed tremendous increment in number of financial institutions.

Nepalese banking system has now a wide geographic reach and institutional

diversification.

Consequently, by the end of midJuly 2013, altogether 253 banks and non- bank

financial institutions licensed by NRB are in operation. Out of them, 31 are A class

commercial banks, 86 B class development banks, 59 C class finance companies, 31

D class micro-credit development banks, 15 saving and credit co-operatives and 31

NGOs. In mid- July 2013, the total banks branches reached to 3,138 with the population

of eight thousand four hundred and forty three per branch.


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1.1.4 Concept of Commercial banks of Nepal

The commercial banks are those banks, which are established to accept deposits and grant

loan to the industries, individual and traders with a view to earn profit. Apart from

financing, they also render services like collection of bills and checks, safekeeping of

valuables, financial advising etc. to their customer.

S.N. Name of the Commercial BankYear of

establishmentHead office Links to Related bank

1 Nepal Bank Limited 1957A.D. Kathmandu www.nepalbank.com.np

2 Rastriya Banijya Bank Limited 1966 A.D. Kathmandu www.rbb.com.np

3 Nabil Bank Limited 1984 A.D. Kathmandu www.nabilbank.com

4Nepal Investment Bank

Limited(previously Nepal Indosuez

Bank)

1986 A.D. Kathmandu www.nibl.com.np

5Standard Chartered Bank

Limited(previously Nepal Grindlays

Bank Limited)

1987 A.D. Kathmanduwww.standardchartered.co

m.np

6 Himalayan Bank Limited 1993 A.D. Kathmandu www.himalayanbank.com

7 Nepal SBI Bank Limited 1993 A.D. Kathmandu [email protected]

8 Nepal Bangladesh Bank Limited 1993 A.D. Kathmandu www.nbbl.com.np

9 Everest Bank Limited 1994 A.D. Kathmandu www.everestbankltd.com

10 Bank of Kathmandu Limited 1995 A.D. Kathmandu www.bokltd.com

11Nepal Credit and Commerce Bank

Limited(Previously Nepal Bank of

Ceylon Limited)

1996 A.D. Bhairawa Nccbank.com.np

12 Lumbini Bank Limited 1998 A.D. Narayangrah www.lumbanibank.com

13Nepal Industrial and Commercial

Bank Limited1998 A.D. Biratnagar www.nicbank.com.np

14 Machhapuchre Bank Limited 2000 A.D. Phokara Machbank.com

15 Kumari Bank Limited 2001 A.D. Kathmandu www.kumaribank.com

16 Laxmi Bank Limited 2002 A.D. Birjung www.laxmibank.com

17 Siddharth Bank Limited 2002 A.D. Kathmandu www.siddharthabank.com

18 Global IME Bank Limited 2013 A.D. Birjung Globalimebank.com

19 Citizens Bank International Limited 2007 A.D. Kathmandu Ctznbank.com


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20 Prime Commercial Bank Limited 2007 A.D. Kathmandu Eprimebank.com

21 NIC Asia Nepal Limited 2013 A.D. Kathmandu nicasiabank.com

22 Grand Bank Nepal limited 2008 A.D. Kathmandu www.dcbl.com.np

23 NMB Bank Limited 2009 A.D. Kathmandu Nmb.com.np

24 Kist Bank Limited 2009 A.D. Kathmandu Kistbank.com25 Mega Bank Limited 2009 A.D. Kathmandu Megabanknepal.com

26 Sunrise bank limited 2009 A.D. Kathmandu Sunrisebank.com.np

27 Janata Bank limited 2009 A.D. Kathmandu Janatabank.com.np

28 Commerz and Trust bank limited 2010 A.D. Kathmandu Ctbanknepal.com

29 Civil Bank limited 2010 A.D. Kathmandu Civilbank.com.np

30 Century commercial bank limited 2011 A.D. Kathmandu Centurybank.com.np

31 Sanima Bank limited 2011 A.D. Kathmandu Sanimabank.com

32 Agricultural Development Bank 2024 B.S. Kathmandu adbl.gov.np

Source: Nepal Rastra Bank

Although bank can be categorized into different types on the on basic of its

function objective etc World Bank always refers to the commercial bank. Basically the

functions of commercial bank al l over the world are same of Basic functions are various

types of deposits facility namely currently saving and fixed safety of public money

remittance of money guarantee locker facilities letter of credit loans serving as agent of

credit foreign exchange etc. The commercial banks of Nepal also do all these functions.

Mainstream function of commercial bank remains the mobilization rigid and

scattered saving of public for providing credit to needy firm industry or people to get

productive use .all other function can be said as auxiliary function.

Commercial banks is a profit oriented financial service institution certain of the

interest is given to the deposits and a certain rate of interest is charge by the bank in the

loan facility .the second charge interest rate is higher than the first .it is the main earning

of the bank.

According to Nepal company act 2031 BS A commercial bank refers to such type

of bank which deal in money exchange accepting deposit advance loan and commercial


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transaction expect specific banking related to co- operative agriculture industry and other

objective. Basic source of funds of commercial bank are capital reserve undistributed

profit and several of deposits basic use of the funds are loans advance and investment.

1.1.5 Importance of Bank

Bank plays a vital role for the economic development of the country. The need of the

bank can be explained from following reasons.

1. Banks finances priority sectors, the helping in economic development of the country.

2. Banks help the optimum utilization of resources by acting as an agent who collect saving

from general people & distribute them to the entrepreneurs.

3. Banks help to stabilize the economy.

4. Banks helps to promote capital formulation by mobilizing the scattered saving of people

and making these available for investment in productive sector..

5. Bank is useful in productive services, agency service, remittance services, issuance of

letter of credit etc.

6. Bank promotes balanced regional development especially in under development of the

country.

7. Bank help in expansion of credit to promote economic development more rapidly by

making the possibility of the fund to be available by making the possibility of the fund to

be available to all the entrepreneurs for investment.

Services provided by commercial bank in Nepal.

Acommercial bankis a type ofbank 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 bank that mostly deals with deposits and loans from

corporations or large businesses, as opposed to individual members of the public. In


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Nepalese context, the commercial bank refers to those financial institutions which has

paid up capital of 5000 million and approved by Nepal Rastrya Bank as an A class

financial institution. The commercial bank of Nepal provides services throughout the

country. At present there are 31 commercial banks in Nepal offering various services to

the people.

Basically the services offered by the commercial bank can be categorized into two

categories.

Primary functions and Secondary functions

Primary functions:

These are the basic services that are provided by every commercial bank in Nepal.

It includes

Acceptance of Deposits

Advancing of Loans

Accepting of Deposits:

The most prime services provided by commercial banks in Nepal are, accepting

deposits. Under this service bank offer various kinds of sub services that are listed

below:

Time Deposits

Demand Deposits:

Time deposits:


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These are deposits repayable after a certain fixed period. These deposits are not

withdrawn able by cheque, draft or by other means. It includes Fixed Deposits and

Recurring Deposits.

Demand deposits:

These are the deposits which may be withdrawn by the depositor at any time without

previous notice. It is withdraw able by check/draft. It includes the following Savings

Deposits and Current Account Deposits:

Advancing of Loans:

Besides accepting the deposits, the prime services provide the commercials

bank is advancing of loans. This is the major source of revenue for the bank. The

different between the interest provided to the depositor and the interest charged on

loan amount is the source of revenue for the bank. This difference in interest is called

as. There are various types of loan provided by the banks. Some of them are listed and

briefly described below:

Overdraft:

Cash Credit:

Loans and Advances:

Housing Finance:

Educational Loan Scheme:

Loans against Shares/Securities:

Loans against Savings Certificates:

Overdraft:


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This facility is given to holders of current accounts only. This is an arrangement

with the bankers thereby the customer is allowed to draw money over and above the

balance in his/her account. This facility of overdrawing his account is generally pre-

arranged with the bank up to a certain limit. It is a short-term temporary fund facility

from bank and the bank will charge interest over the amount overdrawn. This facility is

generally available to business firms and companies.

Cash Credit:

Cash credit is a form of working capital credit given to the business firms. Under this

arrangement, the customer opens an account and the sanctioned amount is credited with that

account. The customer can operate that account within the sanctioned limit as and when required.

It is made against security of goods, personal security etc

Loans and Advances:

It includes both demand and term loans, direct loans and advances given to all type of

customers mainly to businessmen and investors against personal security or goods of movable or

immovable in nature. The loan amount is paid in cash or by credit to customer account which the

customer can draw at any time. The interest is charged for the full amount whether he withdraws

the money from his account or not. Short-term loans are granted to meet the working capitalrequirements whereas long-term loans are granted to meet capital expenditure.

Housing financing:

Nowadays the commercial banks are competing among themselves in providing

housing finance facilities to their customers. It is mainly to increase the housing facilities

in the country. Borrowers of housing finance get tax exemption benefits on interest paid.

Educational loan and schemes:

Under this schemes the commercial bank provide loan to student as an

educational loan. The loan can be specific to the educational type. Not all faculty students

can get the educational loan. It depends on the policy of the banks.


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Loan against share/ securities:

Commercial banks provide loans against the security of shares/debentures of

reputed companies. Loans are usually given only up to 50% value (Market Value) of the

shares subject to a maximum amount permissible as per NRB directives.

Loan against saving certificates:

Banks are also providing loans up to certain value of savings certificates like

National Savings Certificate, Fixed Deposit Receipt. The loan may be obtained for

personal or business purposes.

Secondary function:

Beside the primary function there are various secondary services that have been

provided several commercial banks in Nepal. Some of them are listed and brieflydescribed below:

Agency Functions

General Utility Services

Agency function:

Most of commercial banks in Nepal are found of being an agency between its

customer and their business partners.

As an agency bank provide following services to its customers.


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As an agent the bank collects checks, drafts, promissory notes, interest, dividends

etc., on behalf of its customers and credit the amounts to their accounts.

The bank makes the payments such as rent, insurance premiums, subscriptions, on

standing instructions until further notice. Till the order is revoked, the bank will

continue to make such payments regularly by debiting the customer's account.

As an agent the commercial banks purchase and sell foreign exchange as well for

customers.

Commercial banks undertake the purchase and sale of different securities such as

shares, debentures, bonds etc., on behalf of their customers. They run a separate

'Portfolio Management Scheme' for their big customers.

General utility functions:

The commercial bank of Nepal provides several kinds of general utility services

to their customer. Some of them are listed below:

Safety Locker facility:Safe keeping of important documents, valuables like jewels

are one of the services provided by commercial banks. 'Lockers' are small receptacleswhich are fitted in steel racks and kept inside strong rooms known as vaults. These

lockers are available on half-yearly or annual rental basis.

Payment Mechanism or Money Transfer: Transfer of funds is one of the

important functions performed by commercial banks. Cheques and credit cards are

two important payment mechanisms through banks. Despite an increase in financial

transactions, banks are managing the transfer of funds process very efficiently.

Letters of Credit:Letter of Credit is a payment document provided by the buyer's

banker in favor of seller. This document guarantees payment to the seller upon

production of document mentioned in the Letter of Credit evidencing dispatch of

goods to the buyer. The Letter of Credit is an assurance of payment upon fulfilling


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conditions mentioned in the Letter of Credit. The letter of credit is an important

method of payment in international trade.

ATM facilities: The banks today have ATM facilities. Under this system the

customers can withdraw their money easily and quickly and 24 hours a day. This is

also known as 'Any Time Money'.

Credit cards: Banks have introduced credit card system. Credit cards enable a cus-

tomer to purchase goods and services from certain specified retail and service

establishments up to a limit without making immediate payment.

Merchant Banking: The commercial banks provide valuable services through their

merchant banking divisions or through their subsidiaries to the traders. This is the

function of underwriting of securities. They underwrite a portion of the Public issue

of shares, Debentures and Bonds of Joint Stock Companies.

Advice on Financial Matters:

The commercial banks also give advice to their customers on financial matters

particularly on investment decisions such as expansion, diversification, new ventures,

rising of funds etc. Along with it also gives valuable suggestion to NRB to formulate the

monetary and fiscal policies.

Documents

Nepalese Banks