Nepalese Banking system
NRB has categorised banks as A, B, C, D level provision relating to operation of financial transactions.
1. Subject to the BAFIA Act 2073, and memorandum of association and article of association, a A class licensed institution may carry on the following financial transactions:
⦁ Accepting deposits with or without interest, and refund such deposits.
⦁ Supplying credit as prescribed by NRB.
⦁ Dealing in foreign exchange, subject to law in force.
⦁ Supplying credit for hire-purchase, hypothecation, leasing, housing and service business.
⦁ Engaging in merchant banking business, subject to directives of nrb.
⦁ Making arrangements for jointly supplying credits on the basis of co financing in collaboration with other licensed institutions in accordance with the mutual agreements entered into for the division of the collateral i.e pari passu.
⦁ Issuing guarantee on behalf of its customers, having such customers execute necessary bonds in consideration thereof, obtaining security and acquiring their movable or immovable assets as collateral or on mortgage, or the assets of third persons as collateral.
⦁ Supplying credit against the guarantee provided by any native or foreign bank or financial institutions.
⦁ Issuing, accepting, paying, discounting or purchasing and selling letter of credit, bill of exchange, promissory notes, cheques, drafts or other financial instruments.
⦁ Issuing and accepting credit cards, debit cards, and financial instruments as well as appointing agents to discharge functions relating thereto, subject to NRB directives.
⦁ Providing overdraft to people whom it trusts.
⦁ Supplying credit in lump sum or by installment against the security of the same movable or immovable assets which have already been furnished with it or with any other licensed institution as security to the extent covered by the total value of such security.
⦁ Acting as an agent of NRB on the conditions prescribed by NRB and carrying on governmental and other transactions on behalf of the government of Nepal.
⦁ Remitting or transmitting funds to different places within or outside the state of Nepal through bills of exchange, cheques or other financial instruments, purchasing and selling gold and silver bullion, shares, debentures, bonds, etc. and recovering dividends accruing on shares and interest on promissory notes, debentures, bonds, etc.
⦁ Acting as a commission agent of its customers, taking custody of and arranging for the sale or purchase of shares, debentures or securities, remitting or transmitting such interests or dividends to places within or outside the state of Nepal.
⦁ Purchasing, selling or accepting bonds issued by the government of Nepal or NRB.
⦁ Arranging for safe deposit vaults.
⦁ Carrying on off-balancesheet transactions on such conditions as may be prescribed by NRB.
⦁ Supplying credits not exceeding the amount prescribed by NRB, against individual or collective guarantee, for the economic upliftment of the society.
⦁ Mobilizing capital through shares, debentures, bonds, loan bonds, saving bonds, or other financial instruments within the limit prescribed by NRB.
⦁ Doing or causing to be done studies, research and surveys relating to the establishment, operation and evaluation of projects and providing training consultancy and other informations.
⦁ Writing off credits, subject to by-laws framed by Board.
⦁ Properly managing and selling assets.
⦁ Performing other functions as prescribed by NRB.
2. A ‘B’ class licensed institution may carry on the following financial transactions:
⦁ Accepting deposits with or without interest, and refund such deposits.
⦁ Supplying credit as prescribed by NRB, other than hypothecation loan.
⦁ Dealing in foreign exchange, subject to law in force.
⦁ Supplying credit for hire-purchase, leasing, housing and service business.
⦁ Engaging in merchant banking business, subject to directives of nrb.
⦁ Making arrangements for jointly supplying credits on the basis of co financing in collaboration with other licensed institutions in accordance with the mutual agreements entered into for the division of the collateral i.e pari passu.
⦁ Issuing guarantee on behalf of its customers, having such customers execute necessary bonds in consideration thereof, obtaining security and acquiring their movable or immovable assets as collateral or on mortgage, or the assets of third persons as collateral.
⦁ Supplying credit against the guarantee provided by any native or foreign bank or financial institutions.
⦁ Issuing, accepting, paying, discounting or purchasing and selling letter of credit, bill of exchange, promissory notes, cheques, drafts or other financial instruments.
⦁ Issuing and accepting credit cards, debit cards, and financial instruments as well as appointing agents to discharge functions relating thereto, subject to NRB directives.
⦁ Providing overdraft to people whom it trusts.
⦁ Supplying credit in lump sum or by installment against the security of the same movable or immovable assets which have already been furnished with it or with any other licensed institution as security to the extent covered by the total value of such security.
⦁ Acting as an agent of NRB on the conditions prescribed by NRB and carrying on governmental and other transactions on behalf of the government of Nepal.
⦁ Remitting or transmitting funds to different places within or outside the state of Nepal through bills of exchange, cheques or other financial instruments, purchasing and selling gold and silver bullion, shares, debentures, bonds, etc. and recovering dividends accruing on shares and interest on promissory notes, debentures, bonds, etc.
⦁ Acting as a commission agent of its customers, taking custody of and arranging for the sale or purchase of shares, debentures or securities, remitting or transmitting such interests or dividends to places within or outside the state of Nepal.
⦁ Purchasing, selling or accepting bonds issued by the government of Nepal or NRB.
⦁ Arranging for safe deposit vaults.
⦁ Carrying on off-balancesheet transactions on such conditions as may be prescribed by NRB.
⦁ Supplying credits not exceeding the amount prescribed by NRB, against individual or collective guarantee, for the economic upliftment of the society.
⦁ Mobilizing capital through shares, debentures, bonds, loan bonds, saving bonds, or other financial instruments within the limit prescribed by NRB.
⦁ Doing or causing to be done studies, research and surveys relating to the establishment, operation and evaluation of projects and providing training consultancy and other informations.
⦁ Writing off credits, subject to by-laws framed by Board.
⦁ Properly managing and selling assets.
⦁ Performing other functions as prescribed by NRB.
3. C class licensed institutions carry on the following financial transactions:
⦁ Accepting deposits with or without interest, and refund such deposits.
⦁ Supplying credit as prescribed by NRB, other than hypothecation.
⦁ Supplying credit for hire-purchase, leasing, housing and service business.
⦁ Issuing guarantee on behalf of its customers, having such customers execute necessary bonds in consideration thereof, obtaining security and acquiring their movable or immovable assets as collateral or on mortgage, or the assets of third persons as collateral.
⦁ Supplying credit against the guarantee provided by any native or foreign bank or financial institutions.
⦁ Issuing and accepting credit cards, debit cards, and financial instruments as well as appointing agents to discharge functions relating thereto, subject to NRB directives.
⦁ Providing overdraft to people whom it trusts.
⦁ Supplying credit in lump sum or by installment against the security of the same movable or immovable assets which have already been furnished with it or with any other licensed institution as security to the extent covered by the total value of such security.
⦁ Acting as an agent of NRB on the conditions prescribed by NRB and carrying on governmental and other transactions on behalf of the government of Nepal.
⦁ Acting as a commission agent of its customers, taking custody of and arranging for the sale or purchase of shares, debentures or securities, remitting or transmitting such interests or dividends to places within or outside the state of Nepal.
⦁ Arranging for safe deposit vaults.
⦁ Supplying credits not exceeding the amount prescribed by NRB, against individual or collective guarantee, for the economic upliftment of the society.
⦁ Mobilizing capital through shares, debentures, bonds, loan bonds, saving bonds, or other financial instruments within the limit prescribed by NRB.
⦁ Doing or causing to be done studies, research and surveys relating to the establishment, operation and evaluation of projects and providing training consultancy and other informations.
⦁ Writing off credits, subject to by-laws framed by Board.
⦁ Properly managing and selling assets.
⦁ Performing other functions as prescribed by NRB.
⦁ Purchasing and selling Indian currency.
4. D class licensed institution carry the following financial transactions:
⦁ Supplying credit as prescribed.
⦁ Supplying micro credit, with or without any movable or immovable property as collateral, for operating any micro enterprise to any group or members thereof who have regularly saved for the period prescribed by NRB.
⦁ Obtaining loans or grants from any licensed institutions or native or foreign organisations, and use such loans or grants for the supply of micro credit or for making the same effective.
⦁ Prior to supplying micro credits, evaluating the schemes for which micro credits have been requested and determining whether they are feasible.
⦁ Engaging in micro enterprises of such types which may improve the economic condition of low income persons.
⦁ Taking necessary action towards the timely realization of micro credit.
⦁ Subject to the limit prescribed by NRB, accepting deposits with or without interest and refund such deposits.
⦁ Writing off credits, subject to the by-laws framed by Board.
Structure of Nepalese Banking
As of mid-July 2020, the total number of Banks and Financial Institutions (BFIs) has contracted to 155 comprising of 27 commercial banks, 20 development banks, 22 finance companies, 85 microfinance financial institutions (MFIs) and an infrastructure development bank. Besides, 39 insurance companies, 1 reinsurance company and non-bank financial institutions such as Employees Provident Fund, Citizens Investment Trust, Social Security Fund and a Postal Saving Bank are also in operation.
As per NRB requirement, commercial banks need to meet revised paid up capital requirement of Rs. 8 billions. The requirement for national level development banks is Rs. 2.5 billions, development banks working in 4 to 10 district should have paid up capital of Rs.1.2 billions, and development banks working in 1 to 3 districts should have paid up capital of Rs. 500 millions.
Similarly, national level finance companies should have paid up capital of Rs. 800 millions and finance companies working in 1 to 3 district should have paid up capital of Rs. 400 millions.
A ‘D’ class micro finance should have a paid up capital of 600 millions.
