History of banking Industry

Nepal, a landlocked country with the total surface area of 147181 sq. km and with the total population of around 26.49 million has 218 banking and financial institutions. The boom in the number of banks were witnessed after the economic liberalization. However, the banked population of Nepal is only around 30%. This shows that there is a lot of work that needs to be done in the field of development of the banking industry. Currently there are 31 commercial banks, 87 development banks, 79 finance companies and 21 micro credit development banks in Nepal.

Historical Background:

Banking industry is one of the oldest service industry in Nepal. Though modern banking institution has a very recent origin in Nepal, banking operations were in practice since the Vedic times. It has gone through various stages of evolution and development till this date. The history of modern form of banking in Nepal dates back to 14th Century. First banking transaction was started in Nepal with the establishment of "Tejarath Adda" by King Tribhuvan in 1937 which was later renamed as Nepal Bank Limited in 1994. The government owned 51 percent of the shares of the bank. It is the first commercial bank of Nepal.

Rastriya Banijya Bank (previously known as National Commercial Bank), a state owned bank, was established in 1966. The Land Reform Savings Corporation was established in 1966 to deal with finances related to land reforms. There were two other specialized financial institutions. Nepal Industrial Development Corporation (NIDC), a state-owned development finance organization was established in 1956 with United States assistance to offer financial and technical assistance to private industries. Although the government invested in the corporation, representatives from private sector were also included in board of directors. The Co-operative Bank, which became the Agricultural Development Bank in 1967, was the main source of financing for small agribusinesses and cooperatives. Almost 75 percent of the bank was state-owned; 21 percent was owned by the Nepal Rastra Bank and 5 percent by cooperatives and private individuals. The Agricultural Development Bank also served as the government's implementing agency for small farmers' group development projects assisted by the Asian Development Bank (see Glossary) and financed by the United Nations Development Programme.

In the mid-1980s, three foreign commercial banks opened branches in Nepal. The Nepal Arab Bank was co-owned by the Emirates Bank International Limited (Dubai), the Nepalese government, and the Nepalese public. The Nepal Indosuez Bank was jointly owned by the French Banque Indosuez, Rastriya Banijya Bank, Rastriya Beema Sansthan (National Insurance Corporation), and the Nepalese public. Nepal Grindlays Bank was co-owned by a British firm called Grindlays Bank, local financial interests, and the Nepalese public. Nepal Rastra Bank was created in 1956 as the central bank to function as supervisor of commercial banks and to guide the basic monetary policy of the nation. Its major aims were to regulate the issue of paper money; secure countrywide circulation of Nepalese currency and achieve stability in its exchange rates; mobilize capital for economic development and for trade and industry growth; develop the banking system in the country, thereby ensuring the existence of banking facilities; and maintain the economic interests of the general public.