Nepal’s banking and financial institutions are licensed by Nepal Rastra Bank and grouped into four classes, A to D. This note explains the classes, the main law that governs them, the history of important banks, types of deposit accounts and other basics that are asked in Lok Sewa and bank exams.
1. Classes of banks and financial institutions
Under the Bank and Financial Institutions Act (BAFIA) 2073, Nepal Rastra Bank licenses institutions in four classes:
| Class | Type | Main work |
|---|---|---|
| A | Commercial banks | Full banking: deposits, loans, trade finance, foreign exchange; minimum paid-up capital Rs 8 billion |
| B | Development banks | Loans for industry, agriculture and development projects |
| C | Finance companies | Hire purchase, housing and consumer loans |
| D | Microfinance financial institutions (laghubitta) | Small loans without collateral to low-income people, mostly women, often in groups |
Large-scale mergers and acquisitions since about 2072 BS have reduced the number of institutions, especially commercial banks.
2. History of major banks
| Bank / institution | Year (BS) | Note |
|---|---|---|
| Nepal Bank Limited | 1994 | First commercial bank |
| Nepal Rastra Bank | 2013 | Central bank |
| Nepal Industrial Development Corporation | 2016 | First development finance institution |
| Rastriya Banijya Bank | 2022 | Fully government-owned commercial bank |
| Agricultural Development Bank | 2024 | Loans for agriculture |
| Nabil Bank (Nepal Arab Bank) | 2041 | First joint-venture (private) commercial bank |
3. Types of deposit accounts
| Account | Features |
|---|---|
| Current account | For businesses; unlimited transactions; usually no interest |
| Saving account | For individuals; limited withdrawals; earns interest |
| Fixed deposit | Money kept for a fixed period; higher interest; early withdrawal has penalty |
| Call deposit | For large sums; withdrawable on call; earns some interest |
- The Deposit and Credit Guarantee Fund insures small deposits up to a set limit if a bank fails.
- The Credit Information Bureau keeps records of borrowers and blacklists willful defaulters.
- KYC (Know Your Customer) rules require banks to verify customer identity to prevent money laundering.
4. Banking terms
| Term | Meaning |
|---|---|
| Interest spread | Difference between average lending rate and average deposit rate |
| Base rate | Minimum lending rate of a bank, calculated by NRB’s method |
| CRR (Cash Reserve Ratio) | Share of deposits banks must keep with NRB as cash |
| SLR (Statutory Liquidity Ratio) | Share of deposits banks must keep in liquid assets such as government bonds |
| NPL (Non-Performing Loan) | Loan not repaid on time; bad loan |
| Collateral | Property pledged as security for a loan |
5. Negotiable instruments
- Governed by the Negotiable Instruments Act 2034 BS.
- Cheque: order to a bank to pay a sum from the drawer’s account; a crossed cheque can only be paid into an account.
- Promissory note: written promise to pay a sum to a person.
- Bill of exchange: written order to pay a sum to a person on demand or at a fixed time.
- Issuing a cheque without enough balance (cheque bounce) is a punishable offence.
6. Major banks and their founding dates
| Bank | Founded | Note |
|---|---|---|
| Nepal Bank Limited | 1994 BS (1937 AD) | First commercial bank of Nepal |
| Nepal Rastra Bank | 2013 BS (1956 AD) | Central bank |
| Rastriya Banijya Bank | 2022 BS (1966 AD) | Fully government-owned commercial bank |
| Agricultural Development Bank | 2024 BS (1968 AD) | Finance for agriculture |
| Nabil Bank | 1984 AD | First joint-venture bank (as Nepal Arab Bank) |
7. Banking terms in daily use
- KYC (Know Your Customer): identity checks to prevent fraud and money laundering.
- NPL (non-performing loan): a loan not repaid on time.
- Interest spread: the gap between lending and deposit rates.
- Base rate: the minimum lending rate set by each bank.
- Mobile banking and wallets: digital payments without cash.
8. How this topic is asked in the exam
Objective questions ask the classes of banks (A, B, C, D), founding years of major banks and the law BAFIA 2073. Subjective questions ask about the role of banks in economic development. Mention savings mobilisation, credit, payment services and financial inclusion.
📌 Key points to remember
- BAFIA 2073 governs banks and financial institutions; NRB licenses them.
- Class A: commercial banks (minimum paid-up capital Rs 8 billion).
- Class B: development banks; Class C: finance companies; Class D: microfinance.
- Nepal Bank Ltd (1994 BS) was the first commercial bank; Nabil (2041 BS) the first joint-venture bank.
- RBB (2022 BS) is fully government-owned; ADBL (2024 BS) serves agriculture.
- Current, saving, fixed and call are the main deposit types.
- CRR is kept with NRB as cash; SLR in liquid assets.
- Negotiable Instruments Act 2034: cheque, promissory note, bill of exchange.
Test yourself: Banking System of Nepal
20 questions check what you read about Classes of banks and financial institutions, Types of deposit accounts and Negotiable instruments.