Banking Sector in Nepal

The establishment of Nepal Bank Limited in 1937 AD marked the beginning of formal banking sector in Nepal. Since then, the banking industry has undergone significant changes in terms of size, functions, and role in the economy. In the late 1980s, financial liberalization policies were introduced in Nepal in order to spur the country's economic growth. Foreign investments poured in soon after, which led to establishment of several joint venture banks. Likewise, a large number of domestic investors also started investing in the banking industry. Banks and financial institutions (BFIs) proliferated and by the end of fiscal year 2011, there were 218 BFIs in Nepal (Refer to Annex-1 for details of growth of BFIs). However, after moratorium of new licenses, introduction of merger and acquisition policies, and mandatory requirement to increase paid up capital, some consolidation has taken place in the banking industry resulting in decline in number of BFIs. As on mid-July 2018, there are a total of 151 BFIs in operation. There are 28 Class „A‟ Commercial banks, 33 Class „B‟ Development banks, 25 Class „C‟ Finance companies and 65 Class „D‟ Microfinance financial institutions. In FY 2017/18, the number of BFIs increased from 149 to 151 and the total number of branches increased from 5,068 to 6651. 14 saving and credit co-operatives that were initially licensed by NRB for limited banking transaction have been discontinued from NRB‟s jurisdiction. Nepalese banking sector plays a crucial role in the economy due to its dominant position in the financial system. A number of large projects are being financed through bank loans. Likewise, banks' role is essential for import and export of goods from and to other countries. Further, with technological advancement, more and more people are adopting cards, internet banking services, and mobile banking services to perform financial transactions.