"Nepal Rastra Bank is the Bank of Banks" — Elucidation and Functions, Duties and Rights of NRB

1. Elucidation of "Nepal Rastra Bank is the Bank of Banks"

Nepal Rastra Bank (NRB), established on 14 Baisakh 2013 B.S. (26 April 1956) under the Nepal Rastra Bank Act, 2012 (1955), is the central bank of Nepal. It is called the "bank of banks" because it acts as the banker, supervisor and guardian of all commercial banks and financial institutions operating in the country. Just as ordinary people keep their money in commercial banks, commercial banks keep their cash reserves and deposits with NRB. NRB does not deal directly with the general public; it deals with banks and financial institutions. Hence, it is the bank of banks. The following points clarify this statement:

1. Banker to banks: Commercial banks and financial institutions maintain their current accounts and required cash reserves with NRB. NRB keeps their deposits safe and settles their inter-bank transactions.

2. Lender of last resort: When a bank faces a shortage of funds or a financial crisis, it can borrow from NRB as a last resort. No other institution provides this facility to banks.

3. Supervisor and regulator: NRB regulates, inspects and supervises all banks and financial institutions to ensure they follow the law and remain financially sound. It can punish or even close a bank that violates the rules.

4. Clearing house function: NRB operates the clearing house system through which cheques, drafts and other instruments of different banks are settled. This makes inter-bank payments easy and safe.

5. Banker to the government: NRB keeps the accounts of the Government of Nepal, receives government revenue, makes government payments and manages government debt. It also acts as an adviser to the government on economic and monetary matters.

6. Issuer of currency: NRB has the sole right to issue notes and coins in Nepal. Commercial banks cannot issue currency; they only circulate the currency issued by NRB.

7. Controller of credit: NRB controls the volume and direction of credit in the economy through tools such as the bank rate, cash reserve ratio, statutory liquidity ratio and open market operations. Banks must follow these directives.

8. Custodian of foreign exchange reserves: NRB holds and manages the country's foreign exchange reserves and formulates foreign exchange policy. Banks must deal in foreign exchange as per NRB's rules.

Thus, NRB stands at the top of the banking system, and all banks and financial institutions are dependent on it. This is why it is rightly called the "bank of banks."

Functions, Duties and Rights of Nepal Rastra Bank

The functions, duties and rights of NRB are laid down mainly in the Nepal Rastra Bank Act, 2058 (2002). They can be grouped as follows:

A. Functions of Nepal Rastra Bank

1. Issue of currency: NRB has the monopoly right to issue banknotes and coins. It issues notes of various denominations and manages their supply according to the needs of the economy. It also destroys torn, soiled and mutilated notes.

2. Formulation and implementation of monetary policy: NRB formulates and implements monetary policy to maintain price stability, balance of payments equilibrium and adequate credit flow for production and employment.

3. Banker, adviser and agent of the government: NRB acts as the banker, fiscal agent and adviser to the Government of Nepal. It keeps government accounts, receives revenue, makes payments and advises on economic and financial policy.

4. Banker to banks: As explained above, NRB acts as the banker, supervisor and lender of last resort to commercial banks and financial institutions.

5. Regulation and supervision of banks and financial institutions: NRB licenses, regulates, inspects and supervises banks and financial institutions to ensure a sound and stable financial system.

6. Management of foreign exchange: NRB holds and manages the foreign exchange reserves of the country, formulates foreign exchange policy and regulates foreign exchange transactions.

7. Operation of clearing house: NRB operates the clearing house to settle inter-bank transactions and facilitate the payment system.

8. Development of the financial system: NRB promotes the development of a healthy, competitive and inclusive banking and financial system in the country.

B. Duties of Nepal Rastra Bank

1. To maintain monetary stability and price stability in the country.
2. To ensure the stability of the banking and financial system.
3. To maintain an adequate level of foreign exchange reserves.
4. To promote a safe, sound and efficient payment system.
5. To act in the public interest and not for profit.
6. To submit an annual report to the Government of Nepal on the state of the economy and the financial system.
7. To publish information about its policies and activities for the information of the public.
8. To comply with the directions of the Government of Nepal on matters of economic policy, provided they are consistent with the Act.

C. Rights (Powers) of Nepal Rastra Bank

1. Right to issue currency: Only NRB can issue notes and coins; no other person or institution can do so.

2. Right to license and regulate: NRB can grant, suspend or cancel the license of any bank or financial institution. It can issue directives, inspect their books and take action against defaulters.

3. Right to control credit: NRB can determine the bank rate, cash reserve ratio, statutory liquidity ratio and other monetary tools to control credit creation by banks.

4. Right to manage foreign exchange: NRB can determine the exchange rate system, buy and sell foreign currency and regulate all foreign exchange transactions.

5. Right to act as lender of last resort: NRB can provide loans to banks and financial institutions in times of need.

6. Right to operate the clearing house: NRB can establish and operate the clearing house and regulate the payment system.

7. Right to issue directives: NRB can issue necessary directives, circulars and orders to banks and financial institutions for the effective implementation of the Act.

8. Right to impose penalties: NRB can impose fines, penalties and other punishments on banks and financial institutions that violate the law or its directives.

9. Right to determine its own organizational structure: NRB can determine its own organizational structure, appoint employees and manage its internal affairs as per the Act.

Conclusion

Nepal Rastra Bank is the supreme monetary authority and the apex of the banking system of Nepal. As the "bank of banks," it safeguards the interests of depositors, maintains monetary stability, regulates banks and financial institutions and manages foreign exchange reserves. Its functions, duties and rights are clearly defined by the Nepal Rastra Bank Act, 2058 (2002), and it plays a vital role in the economic development of the country.

Major Banking Services Provided by Banks and Financial Institutions (BFIs) in Nepal

1. Deposit Services: Saving deposit, current deposit, fixed deposit, recurring deposit, call deposit and institutional deposits. These are the main source of funds for BFIs.

2. Loan and Credit Services: Working capital loan, term loan, overdraft, cash credit, hire-purchase loan, mortgage loan, agricultural loan, SME loan, deprived-sector loan, microfinance and gold loan.

3. Remittance and Fund Transfer: Domestic and international remittance, RTGS, Connect IPS, fund transfer through mobile banking and internet banking.

4. Payment Services: Cheque, bank draft, telegraphic transfer (TT), ATM/debit card, credit card, QR payment, mobile banking and internet banking.

5. Agency Services: Collection of electricity, water and telephone bills; collection of government revenue; payment of pension and salary; acting as agent of insurance companies and the government.

6. Foreign Exchange and Trade Services: Letter of Credit (LC), bank guarantee, foreign currency exchange, import–export financing and remittance handling.

7. Other Services: Locker (safe deposit vault) facility, merchant banking, share trading, insurance agency, gold/silver loan and branchless banking.

Improvements to be Done by Nepal Rastra Bank (NRB)

1. Stronger Supervision: Adopt risk-based supervision and prompt corrective action so that weak BFIs are corrected in time.
2. Financial Inclusion: Enforce priority-sector and deprived-sector lending, and expand banking access in remote districts.
3. Modern Payment System: Develop RTGS, Connect IPS and retail payment systems; ensure full interoperability among mobile banking and wallets.
4. Consumer Protection: Strengthen the complaint-hearing mechanism, expand deposit insurance coverage and run financial literacy campaigns.
5. Cyber Security and AML: Issue strict directives on cyber security, digital KYC and anti-money laundering/CFT compliance.
6. Capital and Liquidity: Implement Basel III norms, monitor liquidity and encourage merger/acquisition to build strong institutions.
7. Supporting Infrastructure: Improve Credit Information Bureau (CIB), collateral registry and credit guarantee schemes for agriculture and SMEs.
8. Cheaper Remittance: Reduce remittance cost and bring informal remittance into the formal channel.

Improvements to Be Done by BFIs

1. Expand Reach: Open branches, extension counters and branchless banking counters in rural and unbanked areas.
2. Digital Banking: Provide simple, secure and user-friendly mobile/internet banking apps with strong data protection.
3. Reduce Cost and Simplify Procedure: Lower service charges and reduce paperwork, queues and processing time.
4. Product Diversification: Design products for farmers, women entrepreneurs, youths and SMEs, along with micro-insurance.
5. Customer Service: Train staff in polite, prompt and transparent service; ensure easy grievance redressal.
6. Internal Governance: Strengthen internal control, risk management, audit and cyber security systems.
7. Use of Technology: Apply data analytics, AI and digital KYC for faster and safer transactions.

Conclusion

BFIs provide a wide range of deposit, credit, remittance, payment and agency services. However, these services become truly effective only when NRB ensures strong regulation, modern payment systems and consumer protection, and BFIs expand access, adopt secure digital technology and improve customer service. Together they can build an inclusive, trustworthy and efficient financial system in Nepal.

Importance of Financial Literacy and Financial Inclusion

1. Financial Literacy

Financial literacy is the knowledge, skill and confidence to manage personal and household finances — budgeting, saving, borrowing, insuring and investing wisely. Its importance:

• Informed decision-making: Helps people distinguish between productive and unproductive debt, and avoid predatory lending and fraudulent schemes (e.g. unauthorised "dhukuti" or pyramid schemes).
• Household budgeting and saving: Enables systematic saving, control over expenditure and preparation for contingencies (illness, death, disaster, unemployment).
• Better use of banking services: A literate person uses bank accounts, remittance channels, insurance and digital payment tools instead of keeping cash idle at home.
• Retirement and old-age security: Encourages long-term saving and pension/insurance products, reducing dependence in old age.
• Consumer protection: Awareness of interest rates, terms and conditions, grievance-hearing mechanisms and the role of regulators (NRB, SEBON, Beema Pradhikaran).
• Promotes entrepreneurship: Basic costing, cash-flow and credit knowledge helps small enterprises survive and grow.
• National benefit: Higher saving and investment rates, stronger financial system stability, less non-performing loan (NPL) burden on banks.

2. Financial Inclusion

Financial inclusion means access by all sections of society — especially the poor, women, rural people, remittance families, small farmers and micro-enterprises — to affordable, timely and adequate financial services: savings, credit, insurance, remittance and digital payment.

Its importance:

• Brings the unbanked into the formal financial system, mobilising small savings into productive investment.
• Reduces dependence on informal moneylenders who charge exploitative interest rates.
• Enables direct transfer of state benefits (social security allowances, subsidies) to beneficiaries' accounts, reducing leakage and middlemen.
• Builds a credit history, so the poor can later obtain formal loans at reasonable cost.
• Strengthens the tax base and monetary policy transmission by widening formal transactions.

3. Role of Financial Inclusion in Poverty Alleviation

• Access to micro-credit: Small loans without collateral (through microfinance institutions, cooperatives, deprived-sector lending programmes of banks) let the poor start or expand income-generating activities — livestock, small trade, agriculture, handicrafts — raising household income.
• Saving and asset building: Safe savings accounts help the poor accumulate small surpluses, build assets and smooth consumption during lean seasons and shocks.
• Micro-insurance and risk protection: Crop, livestock and health insurance prevent a single shock (illness, disaster) from pushing a family below the poverty line.
• Remittance channel: Formal remittance transfer is cheaper and safer; remittance-receiving households invest in education, health and housing.
• Human capital: Higher and more stable income enables spending on education and health, breaking the intergenerational poverty cycle.
• Women's empowerment: Accounts and loans in women's names raise their bargaining power within the household and community.
• Self-employment and jobs: Growth of micro-enterprises creates local employment, reducing migration and underemployment.

4. Role in Reducing Economic Inequality

• Vertical equity: Financial services reach the bottom of the income pyramid, so the poor can raise income faster than the rich — narrowing the income gap.
• Reduction of exploitation: Freedom from moneylenders' high interest and from forced labour/bonded-labour type arrangements reduces the wealth drain from poor to rich.
• Equal opportunity: Access to credit, insurance and payment services gives the poor the same economic opportunities as the rich, reducing inequality of opportunity.
• Regional balance: Branch expansion, rural microfinance and digital financial services in remote districts reduce urban–rural and hill–Tarai–Madhesh disparities.
• Redistribution support: Direct benefit transfer, pensions and allowances reach the truly needy, complementing progressive taxation and social security.
• Financial stability: Inclusive systems are more diversified and less crisis-prone; stability protects the poor most, as they suffer most in a financial crisis.

5. Conclusion

Financial literacy and financial inclusion are complementary: literacy without access is useless, and access without literacy leads to misuse (over-indebtedness, default). Nepal's efforts — the Financial Inclusion Roadmap, "one household, one bank account" campaign, branch expansion, microfinance and digital wallets — should be matched with financial education in schools, awareness campaigns and consumer protection. Together they form a powerful, low-cost instrument for poverty alleviation and for building a more equal, inclusive and prosperous society.

Capital Market of Nepal: Problems and Practical Suggestions

Introduction

The capital market is that segment of the financial market where long-term funds are raised and traded through instruments such as shares, debentures, bonds and government securities. In Nepal, it is regulated by the Securities Board of Nepal (SEBON) and operated mainly through the Nepal Stock Exchange (NEPSE), licensed brokers, merchant bankers, mutual funds and depository services (CDSC). Although the market has expanded in recent decades, it is still small, shallow and beset with several structural and behavioural problems.

Problems Seen in the Capital Market of Nepal

1. Small market size and low liquidity NEPSE has a limited number of listed companies (around 250) and a small free float. Daily turnover is low and concentrated in a few scrips, so investors cannot buy or sell large volumes without affecting prices. Many listed shares are held by promoters and never traded.

2. Dominance of banking and financial institutions Listed companies are heavily dominated by commercial banks, development banks, finance companies and microfinances. Productive sectors such as manufacturing, agriculture, tourism and infrastructure are poorly represented, so the market does not reflect the real economy.

3. Weak primary market Very few companies issue shares through Initial Public Offerings (IPOs) each year. The corporate bond market is almost non-existent, and the government bond (treasury bill/development bond) market is dominated by a few institutional buyers. Long-term debt financing through the capital market is thus negligible.

4. Lack of institutional investors Insurance companies, mutual funds, provident funds and retirement funds are few and small. Their participation is limited by legal ceilings and low investible surplus, so the market lacks stable, long-term investors and remains driven by retail speculation.

5. Price manipulation and insider trading Cases of artificial price hiking, "pump and dump" syndicates, insider trading and cornering of shares have been repeatedly reported. Weak surveillance and slow investigation by SEBON and NEPSE reduce investor confidence.

6. Weak regulatory and supervisory capacity SEBON suffers from inadequate skilled manpower, weak enforcement of the Securities Act, 2063 and delayed action against defaulters. Coordination among SEBON, NEPSE, CDSC and Nepal Rastra Bank is also weak.

7. Low financial literacy and irrational behaviour A large number of investors lack basic knowledge of financial statements, ratios and risk. They invest on rumours and tips, chase IPO allotments and panic-sell during corrections, causing artificial volatility.

8. Inadequate infrastructure and technology Although online trading and Mero Share have improved access, problems of server overload, system downtime, slow settlement and limited internet penetration in rural areas persist. Broker offices are concentrated in urban areas.

9. Weak disclosure and corporate governance Many listed companies publish incomplete or delayed financial reports, do not hold AGMs on time, and pay low or irregular dividends. Minority shareholders are often ignored.

10. Lack of diverse instruments Derivatives, commodities, exchange-traded funds, real estate investment trusts and hedging instruments are absent or in a very preliminary stage. Investors have very few options for portfolio diversification.

11. Impact of external and policy factors Political instability, frequent changes in monetary and tax policy, interest rate fluctuations and remittance-driven speculative investment make the market unstable.

Practical Suggestions for Solution

1. Expand and deepen the market Bring more companies, especially from manufacturing, agriculture, tourism and infrastructure, to listing. Encourage SMEs to raise funds through the NEPSE SME platform and simplify IPO procedures.

2. Develop the bond market Issue corporate bonds and debentures on a large scale, develop a secondary bond market, and provide tax incentives to bond issuers and investors. Make government bonds accessible to retail investors.

3. Promote institutional investors Strengthen mutual funds, insurance companies and retirement funds; raise their investment ceilings in securities; and allow foreign institutional investment in a phased manner with proper safeguards.

4. Strengthen regulation and surveillance Equip SEBON with skilled manpower, modern surveillance software and forensic accounting capacity. Enforce strict penalties for insider trading, price manipulation and non-disclosure. Ensure effective coordination among SEBON, NEPSE, CDSC and NRB.

5. Increase financial literacy Run investor awareness programmes through schools, colleges, FM radio, social media and local bodies. Make financial education part of the school curriculum and conduct investor education drives in rural areas.

6. Improve infrastructure and access Upgrade NEPSE's trading platform for reliability and capacity, expand online trading and demat services to all districts, and reduce brokerage and transaction costs.

7. Reform listing and disclosure rules Enforce timely publication of audited financial statements, mandatory AGMs, dividend policies and strict corporate governance codes. Introduce a graded disclosure system and credit rating for listed companies.

8. Introduce new instruments Gradually introduce derivatives, ETFs, REITs and commodity trading after building regulatory and technical capacity. Develop a proper market-making mechanism to improve liquidity.

9. Ensure policy stability and coordination Maintain consistency in monetary, fiscal and securities policies. Avoid frequent policy shocks and coordinate capital market policy with overall financial sector reform.

10. Encourage research and transparency Promote independent research on listed companies, publish market data and indices regularly, and make SEBON's decisions and enforcement actions public to build trust.

Conclusion

The capital market of Nepal has good potential but suffers from small size, low liquidity, weak regulation, poor disclosure and low investor awareness. These problems cannot be solved by SEBON alone. A combined effort of the government, SEBON, NEPSE, CDSC, Nepal Rastra Bank, listed companies and investors is needed. If the above suggestions are implemented sincerely, the capital market can become a strong pillar for mobilising long-term savings and financing national development.

(a) Introduction to Non-Banking Financial Institutions (2 marks)

Non-banking financial institutions (NBFIs) are financial institutions that provide banking-like financial services — such as loans, deposits, insurance, remittance and investment — but do not hold a full banking licence and cannot create credit by issuing demand deposits. In Nepal, NBFIs include finance companies, development banks, microfinance institutions, insurance companies, employee provident funds, citizen investment trusts, and cooperatives. They are regulated by Nepal Rastra Bank (for finance companies, development banks and microfinances), the Nepal Insurance Authority (for insurers), and other respective authorities. Their main function is to mobilise small savings and channel them into productive sectors, thereby supplementing the role of commercial banks in financial inclusion.

(b) Role of Employees Provident Fund (EPF) in the Nepalese Economy (3 marks)

The Employees Provident Fund (EPF), established in 2019 BS (1962 AD) under the Employees Provident Fund Act, 2019 BS, is a compulsory retirement savings scheme for employees of government and organised-sector institutions. Its role in the economy includes:

1. Mobilisation of savings: It collects monthly contributions (10% from employee and 10% from employer) and thus mobilises a large volume of long-term savings from the formal sector.
2. Capital formation and investment: The accumulated fund is invested in government securities, development bonds, and productive sectors, supplying long-term capital for infrastructure and industrial development.
3. Social security: It provides retirement benefits, pensions, medical expenses, housing loans and education loans to members, reducing dependence on the state in old age.
4. Financial discipline and stability: By encouraging compulsory saving, it promotes a saving habit among employees and adds stability to the financial system.
5. Employment and welfare support: Through loans and advances to members, it supports housing, education and health needs, indirectly raising productivity and living standards.

The Citizen Investment Trust (CIT) mobilises savings through its retirement, employees' and special savings schemes. To keep returns high and risk low, it spreads the collected funds over these instruments:

1. Government securities — Treasury bills and development bonds. They carry a sovereign guarantee, so they are very safe and give assured interest.
2. Fixed deposits in commercial banks — These give a fixed, predictable return with low risk and help manage liquidity.
3. Loans against collateral — Loans against land, buildings, shares or insurance policies. They earn a higher interest rate, and the collateral secures the money.
4. Shares and debentures of companies — Investment in sound listed companies gives dividends and capital gains and supports the capital market.
5. Real estate and other physical assets — A long-term investment that protects against inflation and gives rental and appreciation income.
6. Mutual funds and other approved securities — Professionally managed, diversified investments that spread risk.

By diversifying across safe fixed-income instruments and higher-return equity and real assets, CIT balances profitability, safety and liquidity.

Money laundering is the process of disguising money obtained from crime (such as corruption, smuggling or drug trafficking) so that it appears to come from a legitimate source. It usually takes place in three stages:

• Placement — introducing the illegal cash into the financial system, for example through bank deposits.
• Layering — moving the money through many transactions or accounts to hide its origin.
• Integration — bringing the cleaned money back into the economy as apparently legal wealth, for example through property or business.

Prohibited acts under the Money Laundering Prevention Act, 2064 (Section 3): No one may carry out money laundering. The following acts are prohibited:

1. Acquiring, possessing, using or transferring property while knowing, or having reason to believe, that it was obtained from a crime.
2. Concealing or disguising the source, nature, location, ownership or control of such property, or converting it to hide its illegal origin.
3. Investing or re-investing such property in any business or property, or bringing it into Nepal.
4. Carrying out or attempting a transaction intended to conceal the criminal source of property.
5. Giving false information or using forged documents to a reporting institution when opening an account or making a transaction.
6. Assisting, abetting, conspiring in or attempting any of the above acts.

Reporting institutions are also required to keep customer records and report suspicious and threshold transactions to the Financial Information Unit of Nepal Rastra Bank.

Government bond

A government bond is a debt instrument issued by the government to raise funds from the public and institutions. The government promises to repay the principal on a fixed maturity date and to pay interest at a specified rate at fixed intervals. It is a very safe investment because the government guarantees it. In Nepal, Nepal Rastra Bank issues and manages such bonds on behalf of the Government of Nepal.

Bonds issued in Nepal

1. Treasury Bills (T-Bills) — Short-term securities issued for 28, 91, 182 and 364 days to meet short-term government expenditure. They are sold at a discount and redeemed at face value.
2. Development Bonds — Medium and long-term bonds issued to finance development projects, for periods such as 5, 7 and 10 years.
3. National Savings Bonds — Long-term bonds sold to the general public to encourage saving, with a relatively higher interest rate.
4. Citizen Savings Bonds — Bonds issued to citizens at attractive interest rates to mobilise domestic savings.
5. Foreign Employment Savings Bonds — Bonds aimed at Nepali migrant workers to attract their foreign earnings into the country.
6. Special Bonds — Bonds issued to specific institutions such as the Employees Provident Fund, Citizen Investment Trust and Nepal Insurance Corporation.

Treasury bills are short-term (up to one year), while the other bonds are medium to long-term.

Objectives of the Citizen Investment Trust (CIT)

1. To encourage and mobilise the scattered small savings of citizens.
2. To invest the collected funds in productive sectors for economic development.
3. To provide social security and retirement benefits to employees of the organised sector.
4. To develop and strengthen the capital market.
5. To give depositors and investors attractive and secure returns.

Scope of work

1. Operating various savings and deposit schemes.
2. Managing retirement and pension schemes (such as the Employees' Provident and Retirement Savings schemes).
3. Investing funds in shares, debentures, government securities and other approved instruments.
4. Providing merchant banking and underwriting services.
5. Giving loans against deposits and securities.
6. Running insurance and welfare schemes.
7. Providing advisory and agency services.
8. Expanding branches across the country to reach savers everywhere.

Challenges and Future Prospects of Banks and Financial Institutions in Nepal

Challenges:

1. Excess liquidity and weak credit demand: After the 2017–18 credit crunch, banks faced a reverse problem — large deposits with few bankable borrowers, especially after the pandemic and the recent economic slowdown. Idle funds raise operating costs without earning income.

2. Rising non-performing loans (NPLs): Bad loans have climbed above 4% in recent years due to stressed borrowers in construction, real estate, and small business sectors. High NPLs erode profitability and force higher loan-loss provisioning.

3. Financial indiscipline and cooperatives crisis: The misuse of savings in many cooperatives and microfinance institutions has shaken public trust in the whole financial system, pushing depositors to question even licensed banks.

4. Low financial literacy and access: A large share of the population, particularly in rural and remote districts, remains outside the formal banking net. Branch expansion alone has not translated into real usage of banking services.

5. Weak capital base and merger fatigue: Many smaller BFIs struggle to meet regulatory capital requirements. Forced mergers have created integration problems — staff adjustment, IT system mismatch, and diluted service quality.

6. Political interference and unstable policy: Frequent changes in monetary policy, interest rate ceilings, and directed lending distort market signals. Political pressure on loan decisions weakens professional banking.

7. Technological and cyber risks: Growing digital transactions bring risks of hacking, fraud, and system failure. Most BFIs lack strong cybersecurity teams and disaster recovery systems.

8. Stiff competition and shrinking margins: A large number of BFIs (though reduced by mergers) compete for the same urban customers, compressing interest spreads and profitability.

Future Prospects:

1. Digital banking and fintech growth: Mobile banking, QR payments, and digital wallets are expanding fast. BFIs that invest in fintech partnerships and digital channels can reach customers at low cost.

2. Financial inclusion through branchless banking: NRB's policy of a branch in every local level and the expansion of microfinance open a large untapped rural market.

3. Remittance channeling: Nepal receives remittances worth over Rs 1,000 billion annually. Banks can convert this into productive investment through attractive deposit and loan products.

4. Infrastructure and SME financing: Large infrastructure projects and the growing SME sector need long-term credit. Banks with strong capital can capture this demand as the economy revives.

5. Green and sustainable finance: Global and national emphasis on renewable energy and climate-resilient projects creates a new lending area for BFIs.

6. Consolidation into stronger institutions: The merger policy aims to create fewer but well-capitalized banks capable of competing internationally and funding big projects.

7. Improved regulation and supervision: NRB's risk-based supervision, credit information systems, and digital monitoring will strengthen stability and depositor confidence.

Conclusion: Nepal's banking sector faces real stress — high NPLs, weak demand, and trust deficits — but digitalization, financial inclusion, remittance mobilization, and consolidation give it a strong base for stable and inclusive growth in the coming decade.

(a), (b) and (c)

Treasury Bill, Commercial Paper, and Certificate of Deposit are all short-term money market instruments. Equity Share is a long-term capital market instrument.

(c) Nepal Rastra Bank

Under the Bank and Financial Institution Act, 2073 (BAFIA), promoters seeking to establish a bank or financial institution must first apply to Nepal Rastra Bank, which issues the Letter of Intent (LOI) after being satisfied with the proposed capital, promoters and business plan. Only after obtaining the LOI can the institution be registered at the Office of the Company Registrar.

(b) Rs. 5 Lakh

The Deposit and Credit Guarantee Fund (DCGF), Nepal, guarantees deposits of up to Rs. 5 lakh per depositor per licensed bank or financial institution in case of liquidation or failure of that institution.

(b) Granting loans against their own shares as collateral

Under the Bank and Financial Institution Act, 2073 (BAFIA), a bank or financial institution is prohibited from granting loans or credit facilities against the security of its own shares. This restriction exists to prevent circular financing and to protect depositors' funds. The other options — lending to government corporations, opening rural branches, and accepting deposits — are normal permitted activities.

(c) Adoption of digital banking services

Nepal's banking sector has shifted strongly toward digital banking — mobile banking, internet banking, QR payments, wallets and branchless banking — as the cheapest and fastest way to reach unbanked rural populations. Physical branch expansion is slow and costly in remote areas, while digital channels extend financial services (savings, credit, remittance receipt, insurance) to a wider section of the population, which is the core aim of financial inclusion.

(a) The Value Chains of Inclusive Transformation

This project (supported by IFAD in Nepal) is cited as a successful model of inclusive rural growth — it linked small-scale producers to markets through value chains and raised their net farm incomes. IFAD in option (b) is the funding agency, not the programme itself.