PRESENTATION ON

BANKING
REGULATIONS

Anju, Binaya, Mohan

 Contents

■ Introduction
■ Importance
■ Types
■ Development of bank System
■ Current Status
■ Major Directives
■ Overview of trends in the banking regulation

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INTRODUCTION, IMPORTANCE,
TYPES …….

Mohan
 Introduction
■ Bank regulation is a form of government regulation which subjects banks to certain requirements,
restrictions and guidelines, designed to create market transparency between banking institutions
and the individuals and corporations with whom they conduct business.
■ Nepal Rastra Bank (NRB) regulates the national banking system and also functions as the
government’s central bank
■ As a regulator, NRB controls foreign exchange; supervises, monitors, and governs operations of
banking and non -banking financial institutions
■ As the government’s bank, NRB maintains
– all government income and expenditure accounts
– issues Nepali bills and treasury notes
– loans to the government
– determines monetary policy

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 Importance
■ To ensure the safety and stability of financial institutions
– helpful in minimizing negative impact of banks activities about deposits, loans
and investment
■ To provide an efficient and competitive financial system
■ To provide monetary stability
– Regulation of demoralized excessive money creation and inflation
■ To ensure equal opportunities and fairness in the public access to financial services
■ To protect consumers from abuses by credit granting institutions
– protects depositors fund and protects all consumers against loss

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 Types

■ Regulation of commercial banks

■ Regulation of development banks
■ Regulation of insurance companies
■ Regulations of finance companies

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DEVELOPMENT OF BANK
SYSTEM…….

Anju
 Development of Banking System

■ Ranodip Singh” established an office name “Tejarath Adda” in 1933 B.S. in Kathmandu. It
used to provide loans to the government officials and people against deposit of gold and
silver.
■ The modern banking system in Nepal was started after the establishment of Nepal bank
limited on 30th Kartik 1994 B.S under Nepal Bank Act 1994.
■ Under Nepal Rastra Bank act 2012, Nepal Rastra Bank was established as central bank in
Nepal on 14thBaishakh 2013 with the objective to stop maximum use of Indian currencies in
Nepal and to increase the uses of Nepalese notes.

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 DEVELOPMENT continued..

■ Nepal Rastra bank, another commercial bank Rastriya Baniya Bank was established in the
year 2022 under Banijya Bank Act 2021.
■ In the same way, under the agriculture development bank act 2024, the agricultural
development bank was established on 7th Magh 2024.
■ The development of banking system was not satisfactory up to year 2040 B.S. No new bank
was established during this period except the extension of branches of already established
bank inside the country.
■ Nepal Arab Bank Limited was as first joint venture bank in the year 2041 B.S. under
commercial bank act 2031 and company act 2021 populary known as Nabil Bank today.

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 DEVELOPMENT continued..

■ The second joint venture bank to be established in Nepal was Nepal Indosuez Bank in 2041.
today known as Nepal Investment bank limited.
■ Similarly, in the year 2043, the Grind lays Bank limited was established which is known as
standard charted bank limited today.
■ In this phase, several other banks were established as Himalayan Bank limited in 2049 B.S.
Nepal SBI bank limited in 2050, Nepal Bangladesh Bank in 2051 and Everest Bank Limited,
etc.

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 CURRENT STATUS, MAJOR
DIRECTIVES ,
OVERVIEW OF TRENDS IN THE
BANKING REGULATION…….

Binaya
 Current status
■ NRB is responsible for regulating and supervising BFIs licensed by it
■ NRB provides four types of licenses as per type of BFIs:
■ Class A(commercial banks)
■ Class B(development banks)
■ Class C(finance companies )
■ Class D(microfinance companies)
■ There are separate departments for the supervision of each types of BFIs.
– Bank supervision department for the supervision of commercial banks
– Development bank supervision department for the supervision of Development bank
– Finance company supervision department for the supervision of finance companies
– Microfinance supervision and promotion department for the supervision of microfinance
companies

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 Current status continued..

■ Current number of different classes of BIFs in Nepal are:

– Commercial banks, Class “A” category-28
– Development banks ,class “B” category- 44
– Finance companies, class “C” category- 30
– And Micro finance companies, class “D” category-51

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 Major Directives

■ Some major directives issued by the NRB

1. Minimum paid up capital: Licensing Criteria
2. Cash Reserve Ratio (CRR)
3. Statutory Liquidity Ratio(SLR)
4. Off-site Supervision

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 Major Directives continued..
Capital structure: Minimum paid up capital

Commercial banks Rs. 8 billion

Development banks Rs. 2.5 billion

Finance companies Rs. 800 million

Microfinance companies Rs. 400 million

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 Major Directives continued..
Cash Reserve Ratio
Commercial banks 4%

Development banks 4%

Finance companies 4%

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 Major Directives continued..
Statutory liquidity ratio

Commercial Banks 10%

Development Banks 8%

Finance Companies 7%

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 Banking Regulations continued..
Off-site supervision

Financial Analysis Annual off-site report

Commercial banks quarterly annually
Development banks quarterly annually
Finance companies quarterly annually
Microfinance companies quarterly annually

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Overview of trends in the banking regulation
■ The NRB has directed the commercial banks to provide loan facilities to certain sectors by the end of the
fiscal year. According to this,
– 10 percent of loans is to be provided to the agricultural sector,
– 5 percent to hydro power,
– 5 percent to tourism,
– And 5 percent to the rest of the priority sectors
■ The NRB also directs
– the commercial banks to provide at least 5 percent,
– the development banks to provide at least 4.5 percent,
– and the rest of the financial institutions to provide at least 4 percent
– of their loan portfolio to the underprivileged groups.
■ BASEL-III framework and regulation is to be implemented to the BFIs
■ 45 percent of the total deposits in the commercial banks are required to be contributed by the institutional
depositors
■ Previously, the BFIs could offer housing loans to up to NPR 1 crore, this has now been increased to NPR 1.5
crore
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Overview of trends in the banking regulation

■ From 1st of Shrawan 2074 onwards, payment more than NPR 10 lakh should
compulsorily be in in the form of account payee cheque.
■ Provision has been made for “KHA” and “GA” licensed bank based on their paid up
capital, to operate in their area as per federal structure not as per district structure.
■ For every local state out 744 as stated according to federal structure of Nepal
government where there is not branch of bank, it is mandatory for concerned bank
to open branch.

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■ https://niblcapital.com/insights/monetary-policy-207475-highlights/
■ https://www.sharebazarnepal.com.np/regulations/nrb-rules.html
■ https://www.nrb.org.np/

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