Development of Banking in Nepal
Traditional Banking system existed in Nepal for a long time before the introduction of modern banking system. Although, there is no any clear indication about the exact development of banking system, history indicates that at 723 Ad Gunakamadev reconstructed Kathmandu by taking loan. Similarly during the end of 8th century Shankhadhar Sakha paid all the dues taken by the people of Kathmandu valley and introduced new era.
Traditional banking system constitutes only taking and giving loan. Under this system basically following 4 kinds of banks existed: Tankadhari, Tejrath, Mahajan and desi bank. Among them tankadhari (money dealer) was used at the middle of 14th century when they got recognisation as one of the 64 caste classified on the basis of occupation by Jayasthiti Malla. Tankadhari used to provide four kinds of loans namely commercial, family, international and war loan. But was embezzlement in the interest and debt recovery process of tankadhari.
In 1933 B.S Rana Prime Minister Ranoddip Singh introduced Tejarath Adda as government financial institution. It was one of the economic and financial sector reform by Ranoddip Singh. The main objective of Tejarath Adda was to free people from the exploitation of Tankadhari. Tejarath Adda provided loan to general people at a concessional interest rate of 5 percent against collateral of gold, silver.
During Prime Minister Chandra Shamsher period Tejarath Adda entered its service even outside Kathmandu valley. Legal provision was made not to capitalize interest on loan. The only source of fund of Tejarath Adda was the government fund as it did not accept any deposit from public, So, Tejarath Adda failed to meet the growing financial need of the general public. Due to the failure of Tejarath Adda, Samu mahajan again becamé active.
Modern Banking
Nepal Bank Limited
Modern Banking system in Nepal started with the establishment of Nepal Bank Limited in 1994 B.S. There were sufficient grounds for the establishment of Nepal bank. Due to the development, the commercial and industrial activity in the country began rapidly, for this huge amount of money was necessary. Similarly, in 1980 nepal had treaty with India, by which Nepal can have direct trade with third country through Indian Port, which also necessitates the need of banking system in Nepal. Nepal bank was established uner Nepal Bank law 1994.
The preamble of the Nepal Bank Act states its objective as : "In the absence of any bank in Nepal, economic progress of the country was being hampered and causing inconvenience to the people and therefore with the objective of fulfilling that need by providing services for the people and for the betterment of the country, this law is hereby promulgated for the establishment of bank and its operation."
The authorised capital of Nepal bank was one crore, issued capital of 25 lakh and paid up capital of g lakh 42 thousand during its establishment. it started its service even outside Kathmandu such as Birjung, Hetauda, Gaur, Hanakpur, Bhadraupr, Biratnager, Nepaljung through its branch offices. This bank was established with 51 percent share of government and 49 percent share of public. Initially expert from India were brought for its management.
Nepal Bank played dual role of commercial bank as well as central bank until the establishment of Nepal Rastra Bank.
This way banking system of Nepal started not with the establishment of Central bank, but with the establishment of commercial bank.
Nepal Rastra Bank
After 12 years of the incorporation of Nepal Bank Limited, Nepal Rastra Bank was established in Baishak 14, 2013 B.S as central bank under Nepal Rastra Bank Act 2012. The main function of Nepal Rastra Bank was to supervise commercial banks and to guide the basic monetary policy of the country.
During that period dual money system was prevalent in Nepal. People have faith in Indian Rupees than Nepali currency. So, in 2016 falgun 7, NRB issued for notes of Rs 1, Rs.5, Rs. 10 and Rs. 100. In 2017 B.S Foreign currency exchange (control) Act was enacted, which prohibited use of foreign currency in Nepal, and Nepal Rastra Bank started to issue foreign currency exchange rate.
Nepal Industrial Development Corporation (NIDC)
To provide sufficient capital to industrial sector Industrial Development Centre was established in 2013 B.S. Later it was converted into Nepal Industrial Development Corporation in 2016 B.S. This was not actually a bank, but only a financial institution. But, for industry it act like a bank and provide banking service to them. It used to provide medium and long term loan to industries. Currently NIDC is under merger process with Rastriya Banijya Bank.
Agriculture Development Bank
Agriculture Development Bank was established in 2020 B.S, under Cooperative Bank Act, 2019 B.S as a cooperative bank. To focus more on agriculture, Agriculture Development Bank Act, 2024 was enacted and this cooperative bank was converted into Agricultue Development Bank. Initially its authorised capital was 5 crore, later it was ncreased to 40 crore in 2043 B.S. Currently, it also functions as commercial bank.
Rastriya Banijya Bank
With the aim of providing commercial banking services to people throughout Nepal in accessible way, Commercial Bank Act was enacted in 2020 B.S. Under this Act Rastriya Banijya Bank was established in Magh 10, 2022. This was wholly government owned commercial bank and second after Nepal Bank.
Foreign Bank/Economic Liberalization
After the wave of liberalization during 80s, Nepal also adopted liberal economic polices, which pave the way for the establishment of foreign banks in Nepal. prior to liberalized era, there were only few government owned banks and financial institutions, Nepal Rastra Bank as central bank, Nepal Bank and Rastriya Banijya Bank as commercial bank, Agriculture Development Bank and NIDC as development bank. Together with the adoption of liberal policies number of banking institutions have increased significantly: During 2040 decade 4 commercial banks, Nabil, Indoseuz (Investment), Grindlays (Standard chartered) and Himalayan Bank, 3 financial institutions (Class 'c') and 2 Class 'D' Micro finance development bank were established. Similarly during 2050s decade about 128 financial institutions were established.
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