Types of Banks in Nepal : Classifications

According to function and nature of bank, in Nepal banks are classified in following types:-
1) Central Bank
2) Commercial Bank (Class A)
3) Development Bank (Class B)
4) Finance Companies (Class C)
5) Micro Credit Development Bank (Class D)
6) Infrastructure Development Bank

Types of Banks in Nepal : Classifications

1) Central Bank:
The Nepal Rastra Bank (NRB) was established in Baisakh 14, 2013 B.S. (April 26, 1956 A.D.) as a central bank of Nepal to supervises the banks and financial institutions (licensed by the NRB) in Nepal and guides monetary policy.Nepal Rastra Bank was established in 1956 under the Nepal Rastra Bank Act, 1955, to discharge the central banking responsibilities including guiding the development of the embryonic domestic financial sector. Since inception, there has been a significant growth in both the number and the activities of the domestic financial institutions.

2) Commercial Bank (Class A):
A Commercial bank is a type of Bank / Financial Institution 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 large bank, which more specifically deals with deposit and loan services provided to corporations or large/middle-sized business – as opposed to individual members of the public/small business – Retail banking, or Merchant banks.

3) Development Bank (Class B):
The bank which is established for the development of different sectors like industrial, agricultural, infrastructural etc by imitating the modern system and methodology through financial, technical and administrative assistance is known as development bank. Development banks in Nepal are playing vital roles for the development of economy status of Nepal.  Nepal has many nationalized and private banking. There are 70 development banks in Nepal.

4) Finance Companies (Class C):
The history of financial institutions is not very old. When banking sector started carrying out current activities of finance company, large number of finance companies was established and they expanded at a rapid pace in the developed countries, UK and USA in 1960.  In the context of Nepal, there were few insurance companies and Karmachari Sanchaya Kosh working as non-banking financial institution before enactment of Finance Company Act, 2042. Need of Finance Company Act was felt because unauthorized sector was collecting savings from the common public in the name of Upahar and Dhukuti programmes. People showed great interest and enthusiasm in these programmes but they were cheated by most of the organizers of these programmes. Considering peoples’ interest in such programmes, benefit of mobilizing such savings in productive sector, banking sectors’ inability to carry out capital market activities and to meet consumers’ need for credit, government felt the need of finance companies and introduced Finance Company Act, 2042. However, no finance company set up till 2049 because the act came into being only in 2049 with some amendments.

5)Microfinance Instutions (Class D):
Nepal is a land locked developing country. Large portion of people of Nepal are under poverty line. Most of the poor people lives in rural ares and have little opportunity. Microfinance (Micro Credit Development Bank) could help poor people who do not have any collateral, but a willingness to work and a desire to do some business activities from which He/She will acquire employment as well as income.

6) Infrastructure Development Bank

Infrastructural development cannot happen without investment. There are no long term financing institutions with the capacity to fund long term projects. Commercial banks do not have long term investment strategy primarily due to short term nature of their funds. Capital market is narrow and the government is not yet able to attract private capital in infra space due to policy slackness in Public Private Partnership (PPP) front. Lack of expertise for adequately evaluating the opportunity, feasibility and risks of lending in large projects is also a constraint. Realizing this, government had announced to establish infrastructure development bank under a Public Private Partnership (PPP) model via annual budget of 2016/17. 
(Note: (As per BAFIA,2073, Infrastructural development bank is not categorized in any class)

0 Comments