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Nepal Rastra Bank (NRB) is the central bank of Nepal. It issues the Nepali rupee, makes monetary policy, manages foreign exchange and supervises banks and financial institutions. Questions on its establishment, laws and functions appear in Lok Sewa general knowledge papers and in every bank exam. This note covers all of them.
1. Establishment and history
- Nepal Rastra Bank was established on 14 Baisakh 2013 BS (26 April 1956) under the Nepal Rastra Bank Act 2012.
- Its first governor was Himalaya Shumsher JB Rana.
- It works today under the Nepal Rastra Bank Act 2058 BS, which gave it more autonomy.
- Its central office is at Baluwatar, Kathmandu.
- The governor is appointed by the Government of Nepal for a term of five years.
2. Early banking in Nepal
| Institution | Year (BS) | Note |
|---|---|---|
| Tejarath Adda | 1933 | Set up under Prime Minister Ranodip Singh; gave loans to government staff |
| Nepal Bank Limited | 1994 (30 Kartik) | First commercial bank of Nepal |
| Nepal Rastra Bank | 2013 | Central bank |
| Rastriya Banijya Bank | 2022 | Fully government-owned commercial bank |
3. Functions of Nepal Rastra Bank
| Function | Meaning |
|---|---|
| Issue of currency | Sole authority to issue Nepali banknotes and coins |
| Banker to the government | Keeps government accounts, makes payments and manages public debt |
| Bankers’ bank | Commercial banks keep reserves with NRB and settle payments through it |
| Lender of last resort | Lends to banks in a crisis to protect the financial system |
| Monetary policy | Controls money supply, interest rates and credit to keep prices stable |
| Foreign exchange management | Manages foreign exchange reserves and the exchange rate system |
| Regulation and supervision | Licenses, regulates and inspects banks and financial institutions (BFIs) |
| Payment systems | Develops and oversees payment and settlement systems |
4. Objectives under the NRB Act 2058
- Keep prices and the balance of payments stable for sustainable economic development.
- Maintain stability and healthy development of the banking and financial system.
- Develop a secure, healthy and efficient payment system.
- Increase public trust in the banking and financial system.
5. Currency of Nepal
- The currency of Nepal is the Nepali rupee (NPR); 1 rupee = 100 paisa.
- The Nepali rupee is pegged to the Indian rupee at 1 INR = 1.60 NPR.
- Banknotes carry the signature of the governor of Nepal Rastra Bank.
- The monetary policy is usually announced at the start of the fiscal year (Shrawan).
6. Monetary policy tools of NRB
| Tool | What it does | Effect when raised/used |
|---|---|---|
| Cash Reserve Ratio (CRR) | Share of deposits banks keep as cash with NRB | Less money for lending |
| Statutory Liquidity Ratio (SLR) | Share of deposits kept in liquid assets such as treasury bills | Less money for lending |
| Policy rate | Main signal rate inside the interest rate corridor | Loans become costlier |
| Interest rate corridor | SLF rate (ceiling), deposit collection rate (floor), policy rate (middle) | Keeps short-term rates stable |
| Open market operations | Buying or selling government securities, repo and reverse repo | Injects or absorbs liquidity |
| Directed lending | Minimum lending to agriculture, energy, small business | Credit reaches priority sectors |
NRB announces its monetary policy every year in Shrawan and reviews it at mid-year. The policy sets targets for inflation, money supply growth and private sector credit.
7. Governors and important dates
- Established on 14 Baisakh 2013 BS (26 April 1956) under the Nepal Rastra Bank Act, 2012.
- First governor: Himalaya Shumsher JB Rana.
- Now governed by the Nepal Rastra Bank Act, 2058.
- The governor is appointed by the Government of Nepal for a five-year term.
- Central office: Baluwatar, Kathmandu.
8. How this topic is asked in the exam
Objective questions ask the year of establishment, the first governor, the governing Act, the meaning of CRR, SLR and repo, and who issues currency. Subjective questions ask “Explain the functions of Nepal Rastra Bank” or “How does monetary policy control inflation?” Use the tools table above and link each tool to its effect.
📌 Key points to remember
- NRB was established on 14 Baisakh 2013 BS (26 April 1956).
- It was set up under the NRB Act 2012; it now runs under the NRB Act 2058.
- First governor: Himalaya Shumsher JB Rana; office at Baluwatar.
- Governor is appointed by the Government of Nepal for 5 years.
- NRB has the sole right to issue Nepali currency.
- It is banker to the government, bankers’ bank and lender of last resort.
- It makes monetary policy and regulates banks and financial institutions.
- Nepali rupee is pegged to the Indian rupee at 1 INR = 1.60 NPR.
- Tejarath Adda (1933 BS) and Nepal Bank Limited (1994 BS) came before NRB.
📝 Quiz
Test yourself: Nepal Rastra Bank
20 questions on Establishment and history, Functions of Nepal Rastra Bank and Currency of Nepal.
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