1.

1 General Background
1.1.1 Meaning of Bank
A Bank is an organization whose primary functions are concentrated with
accumulation of idle money from General public and advancing loan to individuals,
traders industries and business houses for expenditure. Generally the bank collects money
from those who have spare of it from their income on which it pays interest regularly.
The money thus accumulated can be invested different sectors such as business, foreign
trades, agricultures industry and social works for which it charges certain percentages of
interest which is higher than interest paid by the bank to accumulated fund. Such charges
on advancing loan is the major revenue sources of the bank by which it can bear
administration expenses incurring in the process of operating its activities. Thus the bank
is a good mediator between depositors and loan takers.
To know the precise and clear meaning of bank, some experts definition can be
given. Chambers twentieth century dictionary defines a bank as an Institutions for
keeping, lending and exchanging etc. of money.
According to Crowther A banker is a dealer in debts. The bankers business is
then to take the debts of other to people, to offer his own in exchange and thereby to
create money.
According to World Bank, Banks are the financial institutions that accept funds
in the form of deposit repayable on demand or short notice.
Therefore a bank is a financial institution, which collects deposits and in turn
provides loans by creating credit. Today banking is such a vague tern, it does a lot more
then deposits and credit like remitting money, issue of money guarantee, letter of credit,
controlling, payment, other agency functions, monetary activity of country etc. are also
the major function of bank. This multiplicity of bank service and function has led to a
bank being labeled financial supermarket.
1.1.2 Origin and Evolution of Banks:
There is no unanimity among the economists about the origin of the world
banking the term bank derives from the Italian World Bank which refers to the bench on
which the banker would keep its money for lending and exchanging. Some person tract
its origin from the Latin word Bancus which refers to the bench on which the banker
would keep its money and his record it is believed that the ancestors of modern banking
system were merchants goldsmiths and money lenders. Modern banking showed its seed
in the medieval Italy despite strong Christian prohibitions against charging interest.
The first banks called the banks of Venice were established in Venice Italy in
1157A.D to finance bank of Genoa was establish in 1401and 1408 respectively. After
that bank of Amsterdam was established in 1609A D when the bank of England was
established in 1940 it played the vital role for the development of modern banking
system. After its establishment banks spread all over the world.
1.1.3 Banking history in Nepal
In the context of Nepal like as in other country the goldsmiths and landlord was
the ancient banker. The Nepalese people were highly exploited by Shahu Mahajan by
charging higher interest rate compound interest rate and even by manipulating the
principal amount .if we try to see the history of banking transaction in depth evidence of
money lending function are found in practice before 8
th
century. In 780 B.S.
Gunakamadev the ruler of Kathmandu reconstructed Kathmandu valley by borrowing
debt from the people .14
th
century Tanka dhari system had been running .in the period of
Ranodip Singh in Kathmandu established an office called Tejarath Adda from this office
the government distributed salary t0 their employees and provided loans to government
employment @ 5% of interest against the security of gold sliver etc.
Because of the development of economic activities in Nepal the above institution
could not be fulfilled the need of people so in Kartik 30, 1994, BS Nepal bank limited
was established as one of the semi government commercial bank which had 10 million
authorized capital and 842000 paid of capital .it has done the pioneering function in
spreading the banking habits among the people. Having felt a need of central bank to
control and direct the commercial bank and help the government for making monetary
policies Nepal Rastra Bank was set up in 14 Baisakh 2013 B.S after 19 years.
To fulfill the growing credit requirement of the country the commercial bank
Rastriya Banijya Bank was establish in 10
th
Bhadra 2022B.S Rastriya Banijya Bank is
also to provide facilities for the economic welfare of the general public. Nepal is an
agriculture country to develop agriculture system and industry agriculture Development
Bank and Nepal Industrial Development Corporation was established in 2024BS and
2016 BS respectively.
In the context of banking development, the 1980s saw a major structural change
in financial sector policies, regulations and institutional developments. The initiation of
the financial sector liberalization policy by Nepal Rastra Bank a board of joint venture
banks entered with the view to accelerate the race of development of nation. Government
emphasized the role of the private sector for the investment in the financial sector. With
the adoption of the financial sector liberalization by the government in 80's opened the
door for foreign Banks to open Joint venture Banks in Nepal. As a result, various banking
and non-banking financial institutions have come into existence. Nabil Bank Limited, the
first foreign joint venture bank of Nepal, started operations in July 1984. During two
decades, Nepal witnessed tremendous increment in number of financial institutions.
Nepalese banking system has now a wide geographic reach and institutional
diversification.
Consequently, by the end of mid July 2013, altogether 253 banks and non- bank
financial institutions licensed by NRB are in operation. Out of them, 31 are A class
commercial banks, 86 B class development banks, 59 C class finance companies, 31
D class micro-credit development banks, 15 saving and credit co-operatives and 31
NGOs. In mid- July 2013, the total banks branches reached to 3,138 with the population
of eight thousand four hundred and forty three per branch.


1.1.4 Concept of Commercial banks of Nepal
The commercial banks are those banks, which are established to accept deposits and grant
loan to the industries, individual and traders with a view to earn profit. Apart from
financing, they also render services like collection of bills and checks, safekeeping of
valuables, financial advising etc. to their customer.
S.N. Name of the Commercial Bank
Year of
establishment
Head office Links to Related bank
1 Nepal Bank Limited 1957 A.D. Kathmandu www.nepalbank.com.np
2 Rastriya Banijya Bank Limited 1966 A.D. Kathmandu www.rbb.com.np
3 Nabil Bank Limited 1984 A.D. Kathmandu www.nabilbank.com
4
Nepal Investment Bank
Limited(previously Nepal Indosuez
Bank)
1986 A.D. Kathmandu www.nibl.com.np
5
Standard Chartered Bank
Limited(previously Nepal Grindlays
Bank Limited)
1987 A.D. Kathmandu
www.standardchartered.co
m.np
6 Himalayan Bank Limited 1993 A.D. Kathmandu www.himalayanbank.com
7 Nepal SBI Bank Limited 1993 A.D. Kathmandu nsblco@nsbl.com.np
8 Nepal Bangladesh Bank Limited 1993 A.D. Kathmandu www.nbbl.com.np
9 Everest Bank Limited 1994 A.D. Kathmandu www.everestbankltd.com
10 Bank of Kathmandu Limited 1995 A.D. Kathmandu www.bokltd.com
11
Nepal Credit and Commerce Bank
Limited(Previously Nepal Bank of
Ceylon Limited)
1996 A.D. Bhairawa Nccbank.com.np
12 Lumbini Bank Limited 1998 A.D. Narayangrah www.lumbanibank.com
13
Nepal Industrial and Commercial
Bank Limited
1998 A.D. Biratnagar www.nicbank.com.np
14 Machhapuchre Bank Limited 2000 A.D. Phokara Machbank.com
15 Kumari Bank Limited 2001 A.D. Kathmandu www.kumaribank.com
16 Laxmi Bank Limited 2002 A.D. Birjung www.laxmibank.com
17 Siddharth Bank Limited 2002 A.D. Kathmandu www.siddharthabank.com
18 Global IME Bank Limited 2013 A.D. Birjung Globalimebank.com
19 Citizens Bank International Limited 2007 A.D. Kathmandu Ctznbank.com
20 Prime Commercial Bank Limited 2007 A.D. Kathmandu Eprimebank.com
21 NIC Asia Nepal Limited 2013 A.D. Kathmandu nicasiabank.com
22 Grand Bank Nepal limited 2008 A.D. Kathmandu www.dcbl.com.np
23 NMB Bank Limited 2009 A.D. Kathmandu Nmb.com.np
24 Kist Bank Limited 2009 A.D. Kathmandu Kistbank.com
25 Mega Bank Limited 2009 A.D. Kathmandu Megabanknepal.com
26 Sunrise bank limited 2009 A.D. Kathmandu Sunrisebank.com.np
27 Janata Bank limited 2009 A.D. Kathmandu Janatabank.com.np
28 Commerz and Trust bank limited 2010 A.D. Kathmandu Ctbanknepal.com
29 Civil Bank limited 2010 A.D. Kathmandu Civilbank.com.np
30 Century commercial bank limited 2011 A.D. Kathmandu Centurybank.com.np
31 Sanima Bank limited 2011 A.D. Kathmandu Sanimabank.com
32 Agricultural Development Bank 2024 B.S. Kathmandu adbl.gov.np
Source: Nepal Rastra Bank
Although bank can be categorized into different types on the on basic of its
function objective etc World Bank always refers to the commercial bank. Basically the
functions of commercial bank al l over the world are same of Basic functions are various
types of deposits facility namely currently saving and fixed safety of public money
remittance of money guarantee locker facilities letter of credit loans serving as agent of
credit foreign exchange etc. The commercial banks of Nepal also do all these functions.
Mainstream function of commercial bank remains the mobilization rigid and
scattered saving of public for providing credit to needy firm industry or people to get
productive use .all other function can be said as auxiliary function.
Commercial banks is a profit oriented financial service institution certain of the
interest is given to the deposits and a certain rate of interest is charge by the bank in the
loan facility .the second charge interest rate is higher than the first .it is the main earning
of the bank.
According to Nepal company act 2031 BS A commercial bank refers to such type
of bank which deal in money exchange accepting deposit advance loan and commercial
transaction expect specific banking related to co- operative agriculture industry and other
objective. Basic source of funds of commercial bank are capital reserve undistributed
profit and several of deposits basic use of the funds are loans advance and investment.
1.1.5 Importance of Bank
Bank plays a vital role for the economic development of the country. The need of the
bank can be explained from following reasons.
1. Banks finances priority sectors, the helping in economic development of the country.
2. Banks help the optimum utilization of resources by acting as an agent who collect saving
from general people & distribute them to the entrepreneurs.
3. Banks help to stabilize the economy.
4. Banks helps to promote capital formulation by mobilizing the scattered saving of people
and making these available for investment in productive sector..
5. Bank is useful in productive services, agency service, remittance services, issuance of
letter of credit etc.
6. Bank promotes balanced regional development especially in under development of the
country.
7. Bank help in expansion of credit to promote economic development more rapidly by
making the possibility of the fund to be available by making the possibility of the fund to
be available to all the entrepreneurs for investment.
Services provided by commercial bank in Nepal.
A commercial bank is a type of bank that provides services such as accepting deposits,
making business loans, and offering basic investment products. Commercial bank can
also refer to a bank or a division of a bank that mostly deals with deposits and loans from
corporations or large businesses, as opposed to individual members of the public. In
Nepalese context, the commercial bank refers to those financial institutions which has
paid up capital of 5000 million and approved by Nepal Rastrya Bank as an A class
financial institution. The commercial bank of Nepal provides services throughout the
country. At present there are 31 commercial banks in Nepal offering various services to
the people.
Basically the services offered by the commercial bank can be categorized into two
categories.

Primary functions and Secondary functions
Primary functions:
These are the basic services that are provided by every commercial bank in Nepal.
It includes
Acceptance of Deposits
Advancing of Loans
Accepting of Deposits:
The most prime services provided by commercial banks in Nepal are, accepting
deposits. Under this service bank offer various kinds of sub services that are listed
below:
Time Deposits
Demand Deposits:
Time deposits:
These are deposits repayable after a certain fixed period. These deposits are not
withdrawn able by cheque, draft or by other means. It includes Fixed Deposits and
Recurring Deposits.
Demand deposits:
These are the deposits which may be withdrawn by the depositor at any time without
previous notice. It is withdraw able by check/draft. It includes the following Savings
Deposits and Current Account Deposits:
Advancing of Loans:
Besides accepting the deposits, the prime services provide the commercials
bank is advancing of loans. This is the major source of revenue for the bank. The
different between the interest provided to the depositor and the interest charged on
loan amount is the source of revenue for the bank. This difference in interest is called
as. There are various types of loan provided by the banks. Some of them are listed and
briefly described below:
Overdraft:
Cash Credit:
Loans and Advances:
Housing Finance:
Educational Loan Scheme:
Loans against Shares/Securities:
Loans against Savings Certificates:
Overdraft:
This facility is given to holders of current accounts only. This is an arrangement
with the bankers thereby the customer is allowed to draw money over and above the
balance in his/her account. This facility of overdrawing his account is generally pre-
arranged with the bank up to a certain limit. It is a short-term temporary fund facility
from bank and the bank will charge interest over the amount overdrawn. This facility is
generally available to business firms and companies.
Cash Credit:
Cash credit is a form of working capital credit given to the business firms. Under this
arrangement, the customer opens an account and the sanctioned amount is credited with that
account. The customer can operate that account within the sanctioned limit as and when required.
It is made against security of goods, personal security etc
Loans and Advances:
It includes both demand and term loans, direct loans and advances given to all type of
customers mainly to businessmen and investors against personal security or goods of movable or
immovable in nature. The loan amount is paid in cash or by credit to customer account which the
customer can draw at any time. The interest is charged for the full amount whether he withdraws
the money from his account or not. Short-term loans are granted to meet the working capital
requirements whereas long-term loans are granted to meet capital expenditure.
Housing financing:
Nowadays the commercial banks are competing among themselves in providing
housing finance facilities to their customers. It is mainly to increase the housing facilities
in the country. Borrowers of housing finance get tax exemption benefits on interest paid.
Educational loan and schemes:
Under this schemes the commercial bank provide loan to student as an
educational loan. The loan can be specific to the educational type. Not all faculty students
can get the educational loan. It depends on the policy of the banks.



Loan against share/ securities:
Commercial banks provide loans against the security of shares/debentures of
reputed companies. Loans are usually given only up to 50% value (Market Value) of the
shares subject to a maximum amount permissible as per NRB directives.
Loan against saving certificates:
Banks are also providing loans up to certain value of savings certificates like
National Savings Certificate, Fixed Deposit Receipt. The loan may be obtained for
personal or business purposes.
Secondary function:
Beside the primary function there are various secondary services that have been
provided several commercial banks in Nepal. Some of them are listed and briefly
described below:
Agency Functions
General Utility Services
Agency function:
Most of commercial banks in Nepal are found of being an agency between its
customer and their business partners.
As an agency bank provide following services to its customers.
As an agent the bank collects checks, drafts, promissory notes, interest, dividends
etc., on behalf of its customers and credit the amounts to their accounts.
The bank makes the payments such as rent, insurance premiums, subscriptions, on
standing instructions until further notice. Till the order is revoked, the bank will
continue to make such payments regularly by debiting the customer's account.
As an agent the commercial banks purchase and sell foreign exchange as well for
customers.
Commercial banks undertake the purchase and sale of different securities such as
shares, debentures, bonds etc., on behalf of their customers. They run a separate
'Portfolio Management Scheme' for their big customers.
General utility functions:
The commercial bank of Nepal provides several kinds of general utility services
to their customer. Some of them are listed below:
Safety Locker facility: Safe keeping of important documents, valuables like jewels
are one of the services provided by commercial banks. 'Lockers' are small receptacles
which are fitted in steel racks and kept inside strong rooms known as vaults. These
lockers are available on half-yearly or annual rental basis.
Payment Mechanism or Money Transfer: Transfer of funds is one of the
important functions performed by commercial banks. Cheques and credit cards are
two important payment mechanisms through banks. Despite an increase in financial
transactions, banks are managing the transfer of funds process very efficiently.
Letters of Credit: Letter of Credit is a payment document provided by the buyer's
banker in favor of seller. This document guarantees payment to the seller upon
production of document mentioned in the Letter of Credit evidencing dispatch of
goods to the buyer. The Letter of Credit is an assurance of payment upon fulfilling
conditions mentioned in the Letter of Credit. The letter of credit is an important
method of payment in international trade.
ATM facilities: The banks today have ATM facilities. Under this system the
customers can withdraw their money easily and quickly and 24 hours a day. This is
also known as 'Any Time Money'.
Credit cards: Banks have introduced credit card system. Credit cards enable a cus-
tomer to purchase goods and services from certain specified retail and service
establishments up to a limit without making immediate payment.
Merchant Banking: The commercial banks provide valuable services through their
merchant banking divisions or through their subsidiaries to the traders. This is the
function of underwriting of securities. They underwrite a portion of the Public issue
of shares, Debentures and Bonds of Joint Stock Companies.
Advice on Financial Matters:
The commercial banks also give advice to their customers on financial matters
particularly on investment decisions such as expansion, diversification, new ventures,
rising of funds etc. Along with it also gives valuable suggestion to NRB to formulate the
monetary and fiscal policies.