Banking History in Nepal – Development of Banking System in Nepal

banking system development in Nepal

Banking History in Nepal

The banking system development in Nepal began late compared to other developed countries. The official banking system was started in 1933 BS (1877 AD) with the establishment of Tejarath Adda. But before that, different rulers of Nepal started some kinds of financial institutions. The banking development of Nepal can be divided into three phases. Ancient, Middle age, and modern banking systems.

Ancient Banking in Nepal Before (1877 AD)

  • During the Malla regime, a community called Tankadhari (those who have money) used to lend money to needy people.
  • During the Prithvi Narayan Shah tenure, Kaushi Toshakhana was established to look after the financial management of the regime.
  • Chandra Shamsher established ‘Satahikhana’ under “Mulukikhana” for facilitating exchange between Nepalese rupee and Indian rupee.

Middle Age to Modern Banking System (After 1877)

  1. In 1933 BS, fully government-owned, Tejarath Adda was established during the tenure of prime minister Ranodeep Singh. Loans were used to advance to the public against gold and silver. But very limited people used to get credit facilities with a 5% interest rate. No deposit was collected from the public.
  2. In 1989 BS, Taksar Adda was established that issued coins for the first time in Nepal.
  3. In 1994/07/30 BS, Nepal Bank Limited was established as per the Nepal Bank Act 1994. Nepal Bank is the first commercial bank in Nepal. After its establishment, Nepal Bank started to work as the central bank of Nepal except for issuing notes and coins.
  4. In 2002/06/01 BS, Sadar Mulukikhana issued first bank note of Rs. 5,Rs. 10,Rs. 100 for the first time in Nepal. This note is known as an old print.
  5. In 2013/01/14 BS, Nepal Rastra Bank was established under the Nepal Ratra Bank Act 2012. Nepal Rastra Bank is the central bank of Nepal. NRB issued banknotes of Ra. 1, Rs. 5, Rs.10, and Rs. 100 in 2016/11/17 BS while Himalaya Samsher JRB was governor. This note is known as a new print.
  6. In 2013/12/20, Bakhanpur Sahakari was established. (Since then, Sahakari Day is being celebrated on Chaitra 20).
  7. In 2014 BS, Nepal Industrial Development Bank was established. Later on, on 2016/03/01 NIDB was converted to Nepal Industrial Development Corporation. NIDC is the first development bank in Nepal. In 2073/01/19, NIDC was merged with Rastriya Banijya Bank.
  8. In 2022/10/10 BS, Rastriya Banijya Bank (RBB) was established as per the RBB Act 2021 as the second commercial bank in Nepal.
  9. In 2024/10/07 BS, Agriculture Development Bank (ADB) was established as per the ADB Act 2024. In 2062/03/31 BS, ADB was converted to Agriculture Development Bank Limited (ADBL) and got the license as a commercial bank in 2062/12/03.
  10. In 2025 BS, a banking promotion committee was formed.
  11. In 2031 BS, the commercial bank act is issued. In the fiscal year 2032/33, a small farmer development project (program) was initiated.
  12. Hulak Bank was started in 2033 BS.

After Liberalization

  1. Nepal adopted an open economic policy from FY 2040/41. After the adoption of an open economic policy and economic liberalization, many private banks started to establish in Nepal.
  2. In 2041/03/29 BS, Arab Bank Limited (Now Nabil) was established. Arab Bank is the first joint venture bank in Nepal.
  3. In 2042/11/16 BS, Nepal Indosuez Bank (Now Nepal Investment Bank Limited) was established.
  4. In 2043 BS, Nepal Grindlays (Now Standard Chartered Bank Limited) was established. 
  5. In 2049 BS, Purbanchal Bikash Bank was established with the objective of proving banking services in the rural sector.
  6. In 2049/04/11 BS, Nepal Awas Bikash Bitta Company was established.
  7. In 2057 Mangsir, Nepal Rastra Bank implemented a comprehensive Financial Sector Reform Program.
  8. In 2058 BS, Sana Kisan Bikash Bank was established.
  9. In FY 2066/67, the total number of BFIs (A, B, C, D Category) reached 257. But despite of the increasing number of BFIs in the country, still they lack in providing quality banking services. So, in order to reduce the number of banks and increase the service, Merger Policy 2068 was issued to facilitate the merger process. Merger policy alone was not enough so Acquisition policy 2070 was issued. Later, in 2073, both these policies are combined and Merger and Acquisition Policy 2073 was formulated.
  10. As of Mid July, 2023, the following are the number of BFIs in Nepal after merger and acquisition.
Commercial Bank20
Development Bank17
Finance Companies17
Infrastructure Bank1
Others15 (For hire purchase purpose)

The total number of BFIs licensed by NRB remained 112 in mid-July 2023. As of mid-July 2023, 20 commercial banks, 17 development banks, 17 finance companies, 57 microfinance financial institutions and 1 infrastructure development bank are in operation. The number of BFIs branches reached 11,589 in mid-July 2023 from 11,528 in mid-July 2022 (Table 6). Population per branch remained 2517 in mid-July 2023 compared to 2532 a year ago

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