Banking and Financial Institutions

(c) 20

Nepal currently has 20 commercial banks (Class "A" financial institutions) licensed by Nepal Rastra Bank, following a series of mergers and acquisitions.

(d) None of the above

Nepal currently has 20 commercial banks (Class "A" financial institutions licensed by Nepal Rastra Bank). The number fell to 20 after a series of mergers and acquisitions among the older banks, so none of the figures 25, 26 or 28 is correct.

(c) Son of friend

Under Section 2 of the Banking Offence and Punishment Act, 2064, "close relative" (नातेदार) covers one's own or one's spouse's father, mother, son, daughter, brother, sister, daughter-in-law, son-in-law, mother-in-law, father-in-law, and relations such as devar, jethaju, nanda, sala, sali, bhauju, and the children of one's brothers and sisters. A friend's son carries no such blood or marital relationship, so it is not included in the definition.

(a) Nepal Rastra Bank

Under the Banking Offence and Punishment Act, 2064 (2008), banking offences are investigated by Nepal Rastra Bank — its Governor designates an investigation officer, and the Bank itself files the case in the competent court. The Commission for the Investigation of Abuse of Authority deals with corruption by public officials, not banking offences as such.

(c) 2 years imprisonment

Section 6(3) of the Banking Offence and Punishment Act, 2064 provides that where the amount involved in the banking offence is more than Rs 500,000 but up to Rs 1,000,000 (ten lakh rupees), the offender shall be punished with imprisonment for a term not exceeding two years, or with a fine not exceeding Rs 1,000,000, or with both. The six-month imprisonment slab applies only where the amount involved is up to Rs 100,000.

(a) Within 3 months

Under Section 22 of the Banking Offence and Punishment Act, 2064 (2008), the concerned bank or financial institution must lodge the First Information Report (जाहेरी) with the concerned District Police Office within three months from the date the banking offence comes to its notice. If the bank fails to do so within that period, Nepal Rastra Bank may itself file the complaint.

(c) Secretary, Ministry of Finance

Under the Asset (Money) Laundering Prevention Act, 2064, the National Coordination Committee is constituted with the Secretary of the Ministry of Finance as its coordinator (chair), with members drawn from the Ministry of Home Affairs, Ministry of Law, Justice and Parliamentary Affairs, Ministry of Foreign Affairs, Nepal Rastra Bank and other concerned bodies.

(d) Financial Information Unit (FIU)

FIU Nepal is the national financial intelligence unit established under the Prevention of Money Laundering and Promotion of Good Governance Act, 2064 (2008). It receives, analyses and disseminates suspicious transaction reports and is the central authority for AML/CFT in Nepal. (Nepal Rastra Bank is the banking regulator and also supervises AML compliance in banks, but the designated AML authority is FIU Nepal; "Financial Intelligence Authority" is not a body in Nepal.)

(a) Placement, Layering and Integration

Money laundering proceeds in three stages: placement (dirty money is first introduced into the financial system), then layering (a series of transactions and transfers are made to hide the source and break the audit trail), and finally integration (the laundered money is returned to the economy as apparently legitimate income). Hence the correct order is Placement → Layering → Integration.

(a) A first-class Officer of Civil Service

Under the Prevention of Money Laundering and Promotion of Good Governance Act, 2064 (2008), the Department of Money Laundering Investigation is headed by a person appointed by the Government of Nepal from among first-class officers of the Nepal civil service (or officers of equivalent rank), which is why the department chief holds the rank of a joint secretary-level officer.

(d) Legal inheritance

The Asset (Money) Laundering Prevention Act, 2064 lists predicate offences such as revenue evasion, organized crime, financing of terrorist activities, corruption, drug trafficking, kidnapping, etc. Acquiring or transferring property through legal inheritance is a lawful act and is not an offence under the Act.

(d) Mint Division

Raw gold is sold by the Mint Division of Nepal Rastra Bank. The Mint Division handles the minting of coins and the sale/purchase and management of gold and silver held by the Bank.

(b) Institution's credit policy or regulations

The terms and conditions for accepting gold and silver as collateral — purity, valuation rate, loan-to-value ratio, margin, and repayment terms — are laid down in the institution's credit policy (or the relevant lending regulations/directives), which governs all such lending.

(a) NPR 2.5 million

As per Nepal Rastra Bank's Unified Directives (Directive No. 8 — Credit Risk Management), a bank or financial institution may lend a maximum of Rs 2.5 million to a single borrower against gold and silver ornament collateral, per borrower per institution.

(c) Banks and Financial Institutions

Unified Directives are issued by Nepal Rastra Bank under the Nepal Rastra Bank Act, 2058, and the Banks and Financial Institutions Act, 2073. The primary responsibility to comply with them rests on the Banks and Financial Institutions (BFIs) themselves — their Board of Directors and senior management must ensure full compliance.

(d) 80

Nepal Bank Limited provides secured gold loans up to 80% of the appraised value of gold/gold ornaments kept as security.

(b) Spot price

The spot price is the current market price at which gold and silver can be bought or sold for immediate delivery, and it is published daily on global markets such as London (LBMA) and New York (COMEX).

(c) credit

Loan loss provision (loan loss reserve) is created out of profit to cover the loss likely to arise from loans and advances that may not be recovered. It is therefore a safeguard against credit risk — the risk of default by borrowers — and not against interest rate, operating or liquidity risk.

The Bank and Financial Institutions Act, 2073 (BAFIA) prohibits banks and financial institutions from carrying out certain activities. Any five prohibited activities are:

1. Engaging in trade or business — A bank cannot carry on any commercial or trading activity of goods and services on its own account (except as permitted for recovery of loans or as allowed by Nepal Rastra Bank).

2. Investing in shares or securities of another company — Banks are barred from purchasing or investing in shares, debentures or securities of any other company, except as expressly permitted by the Act or NRB directives.

3. Granting loans against the security of their own shares — A bank cannot lend money on the security of its own shares or those of its subsidiary or affiliated companies.

4. Providing loans to directors, officials or their relatives without due process — Banks cannot grant credit or facilities to their directors, auditors, officials or their close relatives except in accordance with the conditions and limits prescribed by the Act and NRB.

5. Acquiring or holding immovable property beyond the permitted limit — A bank cannot purchase or hold immovable property other than what is necessary for its own business premises or as acquired in the course of recovering bad loans (which must be disposed of within the prescribed time).

Other prohibited acts include accepting deposits in a fictitious name, carrying out transactions without proper accounting records, and paying dividends without NRB approval.

Recent challenges faced by Banks and Financial Institutions (BFIs) of Nepal — 5 marks

1. Liquidity crunch and high cost of funds — Periodic shortage of lendable funds, heavy dependence on high-interest fixed deposits and interbank borrowing, which raised the cost of funds and squeezed interest spreads.

2. Rising non-performing loans (NPLs) — NPL ratio crossed around 4–5% in recent years due to poor repayment capacity of borrowers, especially in sectors like real estate, hire-purchase and small businesses, forcing higher loan-loss provisioning.

3. Shrinking credit demand amid surplus liquidity — After the liquidity crunch, BFIs faced the opposite problem: deposits grew faster than credit demand due to low private-sector investment confidence and high interest rates, leaving idle funds.

4. Regulatory tightening and compliance burden — Nepal Rastra Bank's directives on capital adequacy (Basel III), loan classification, single-borrower limits, digital reporting and anti-money laundering (AML/CFT) compliance increased operational and compliance costs.

5. Rising digital fraud and cyber security risks — Growth of mobile banking, QR payments and internet banking brought risks of hacking, phishing, ATM skimming and insider fraud, requiring heavy investment in IT security.

6. Intense competition and financial access pressure — Large number of BFIs (though reduced by mergers) competing for the same limited market, plus pressure to expand branches in rural areas with low profitability.

7. Political and economic uncertainty — Slow capital expenditure, sluggish economic growth, import restrictions and remittance-dependent deposit base make business planning and credit recovery difficult.

8. Merger/acquisition and capital adequacy pressure — Forced consolidation to meet minimum paid-up capital requirements created integration, staff adjustment and goodwill-related problems.

9. Interest rate volatility — Sharp swings in interest rates affected both borrowers' repayment capacity and BFIs' profitability.

10. Human resource challenges — Shortage of skilled manpower in IT, risk management and credit analysis, with high staff turnover to microfinance and cooperatives.

Conclusion: BFIs in Nepal are thus challenged by liquidity imbalance, rising NPLs, cyber risks, regulatory pressure and uncertain economic conditions, requiring strong risk management, digital upgrading and prudent lending.

(a) Difference between Central Bank and Other Types of Banks

(b) Main Functions of Nepal Rastra Bank

Nepal Rastra Bank (NRB), established on 14 Baisakh 2013 BS under the Nepal Rastra Bank Act, 2012 BS, is the central bank of Nepal. Its main functions are:

1. Issue of currency: It has the sole monopoly of issuing notes and coins (except one-rupee coins and coins below that, issued by the government). It keeps the issued notes in circulation as per need.
2. Formulation and implementation of monetary policy: It formulates monetary policy and controls credit and money supply through tools such as bank rate, open market operations, cash reserve ratio and credit ceiling, to maintain price stability and balance of payments.
3. Banker, advisor and agent of the government: It keeps the accounts of the government, receives government revenue, makes payments on behalf of the government, grants loans to the government and gives advice on economic and monetary matters.
4. Banker's bank: It acts as the bank of all commercial banks. It keeps their deposits, provides them loans and rediscount facilities in times of need, and acts as the lender of last resort.
5. Supervision and regulation of banks and financial institutions: It grants licences, inspects and supervises commercial banks, development banks, finance companies and microfinance institutions to ensure a sound banking system.
6. Clearing house and remittance function: It operates the clearing house for inter-bank transactions and facilitates remittance of funds between banks.
7. Foreign exchange management: It formulates foreign exchange policy, fixes the exchange rate of the Nepalese rupee, and manages and maintains the foreign exchange reserve of the country.
8. Promotion of financial inclusion and development: It promotes financial access, financial literacy and a healthy banking habit among the people, and works for the development of the financial sector.

Nepal Rastra Bank (NRB) provisions on loans against gold collateral

Nepal Rastra Bank, as the regulator of banks and financial institutions (BFIs), prescribes the following through its Unified Directives and circulars:

1. Loan-to-value (LTV) limit: A BFI may lend only up to a prescribed percentage of the value of the pledged gold or silver. The ceiling is revised from time to time, so the borrower must always bear a margin.
2. Valuation: Gold is valued at the prevailing market price of standard (fine) gold, taking purity into account after testing by a qualified valuer or touchstone/assay. Making charges and impurities are not counted as value.
3. Eligible collateral and purpose: Gold and silver ornaments owned by the borrower are accepted. Ownership and identity of the borrower (KYC) must be verified before lending.
4. Safe custody and insurance: Pledged items are kept in a strong room or double-locked safe under dual control of authorised officials, are insured against fire and theft, and are recorded in a gold-loan register with receipts issued to the customer.
5. Repayment and recovery: Loans are normally short-term and must be repaid or renewed within the stipulated period. On default, the bank may auction the gold after due notice as per law and refund any surplus to the borrower.
6. Reporting and supervision: BFIs report such lending to NRB in the prescribed returns, and NRB checks compliance through on-site and off-site supervision.

In short, the provisions keep gold-backed lending safe and transparent through margin requirements, proper valuation, secure custody and regular reporting.

Testing methods of precious metals (gold, silver, platinum) — 5 marks

Precious metals are tested to confirm their purity, identify the metal, and detect adulteration or imitation. The main methods are:

1. Touchstone (touch needle) test The metal is rubbed against a smooth black stone (touchstone), leaving a streak. A set of standard needles (touch needles) of known purity is rubbed alongside, and the streaks are compared. The acid (aqua fortis) is applied to see which streaks fade. This gives an approximate karat value. It is a traditional, quick, and low-cost method used by jewellers.

2. Acid test A small scratch is made on the metal and a drop of acid (nitric acid for gold/silver) is applied. If the metal is pure, the mark does not react; if it is base metal or low purity, it turns green or dissolves. Different acids are used for different karats. It is simple but only indicative and slightly destructive.

3. Fire assay (cupellation) This is the most accurate and standard method. A sample is weighed, mixed with lead (litharge) and flux, and heated in a cupel at high temperature. Base metals oxidise and are absorbed by the cupel, leaving a bead of pure gold/silver which is weighed. Purity is calculated from the weight loss. Used in assay offices and banks for final valuation.

4. X-ray fluorescence (XRF) test A non-destructive, modern instrumental method. X-rays are directed at the metal; the metal emits secondary X-rays of characteristic energy. The instrument reads the spectrum and gives the exact percentage of gold, silver, copper, etc. It is fast, accurate, and does not damage the ornament. Widely used in banks, hallmarking centres, and customs.

5. Specific gravity (density) test The weight of the metal in air and in water is measured. Specific gravity = weight in air ÷ loss of weight in water. Pure gold has SG about 19.3; silver about 10.5. A lower value indicates adulteration with lighter metals. It is non-destructive but not reliable for hollow or mixed pieces.

6. Electronic (conductivity) tester The electrical conductivity of the metal is measured; pure gold and silver have high, fixed conductivity. Any fall in conductivity shows impurity. Quick and non-destructive, but only a screening method.

7. Hallmark verification The official BIS/Nepal Bureau of Standards hallmark stamp (purity mark, jeweller's mark, assay office mark) is checked. Hallmarking is the legally accepted proof of purity in Nepal.

Conclusion: For routine checking, the touchstone and acid tests are used; for exact and legal purposes, fire assay or XRF is preferred.

(a) Money laundering

According to the Asset (Money) Laundering Prevention Act, 2064 (2008), money laundering means converting, transferring, concealing or disguising property acquired from a criminal or illegal source, or showing it as if it came from a lawful source, so as to hide its true origin, location, ownership or control, or helping another person to do so.

In simple terms, it is the process of turning "black money" earned through corruption, smuggling, tax evasion, drug trafficking, fraud and similar offences into money that appears legitimate.

(b) Importance of the Act in the context of Nepal

1. Control of corruption and black money: Nepal faces corruption, smuggling across its open border and tax evasion. The Act allows illegal proceeds to be traced, frozen, confiscated and prosecuted.
2. Protection of the financial system: Banks and financial institutions are the main channels for laundering. The Act requires customer identification (KYC), record keeping and reporting of suspicious transactions to the Financial Information Unit (FIU) of Nepal Rastra Bank.
3. Prevention of terrorist financing and organised crime: It cuts off the funds that support such activities and so supports national security.
4. International compliance: Nepal is a member of the Asia/Pacific Group on Money Laundering (APG) and follows the FATF standards. Effective implementation protects Nepal's credibility, foreign investment and remittance channels, and reduces the risk of being listed as a high-risk country.
5. Institutional mechanism: The Act provides for the FIU and a National Coordination Committee, and for investigation and prosecution of laundering offences.

Thus the Act is an essential legal tool for financial discipline and for protecting Nepal's economy and international standing.

(c) Nepal Rastra Bank

Nepal Rastra Bank is the central bank of Nepal and, under the Nepal Rastra Bank Act, 2058 (2002), it is the sole authority that formulates and implements the country's monetary policy. The Ministry of Finance handles fiscal policy, while the Financial Comptroller General Office manages government revenue and expenditure.

(b) Bank Guarantee

A bank guarantee is a contingent liability — the bank promises to pay only if the customer defaults — so it is not recorded on the balance sheet and is shown as an off-balance sheet item. Drafts and remittances are recorded as liabilities on the balance sheet, while a safe deposit locker is a custodial service, not a contingent commitment.

(a) Nepal Bank Limited

Nepal Bank Limited, established in 1937 AD (1994 BS), is the first bank of Nepal. Nepal Rastra Bank (1956) is the central bank, Rastriya Banijya Bank was set up in 1966, and the Agricultural Development Bank in 1968.

Roles of the central bank in maintaining price stability — 4 marks

Price stability means keeping the general price level stable, i.e. controlling inflation (and deflation). In Nepal, Nepal Rastra Bank (NRB) performs the following roles to maintain it:

1. Monetary policy formulation and implementation — NRB uses instruments like the bank rate, open market operations, cash reserve ratio (CRR) and statutory liquidity ratio to control money supply. Reducing money supply when inflation rises helps keep prices stable.

2. Credit control — Through quantitative measures (CRR, SLR, open market operations, repo/reverse repo) and qualitative measures (moral suasion, credit rationing, margin requirements), NRB controls the volume and direction of bank credit so that excessive credit does not fuel inflation.

3. Issuing currency in a controlled manner — NRB has the sole right to issue notes. By issuing currency according to the needs of the economy (minimum reserve system), it prevents excess money supply that causes price rise.

4. Maintaining foreign exchange and balance of payments stability — By managing foreign exchange reserves and the exchange rate, NRB controls the price of imports. A stable exchange rate keeps import prices, and hence domestic prices, stable.

5. Regulating and supervising banks and financial institutions — NRB supervises BFIs to prevent unhealthy lending practices and speculative activities that could disturb prices.

6. Adopting appropriate interest rate policy — By raising interest rates during inflation and lowering them during deflation, NRB influences saving, investment and consumption, thereby controlling demand-pull inflation.

Conclusion: Through these monetary and credit measures, the central bank controls money supply and demand in the economy, which helps maintain price stability.

Differences between a Manager's Cheque and a Good for Payment Cheque

The main points to consider while preparing a Memo are:

1. Purpose/Objective — State the reason for the memo clearly and briefly at the outset.
2. Receiver (To) — Mention the correct name, designation and department of the person to whom the memo is addressed.
3. Sender (From) — Write the name and designation of the sender (or the concerned department/office).
4. Date — Put the date of issue of the memo.
5. Subject — Give a short, specific and clear subject line indicating the matter of the memo.
6. Reference — Mention the reference number and date of the letter, order or decision on which the memo is based, if any.
7. Body/Content — Write the message in simple, clear, concise and official language; include only necessary facts, figures and instructions.
8. Clarity and Brevity — Avoid ambiguity, unnecessary detail and personal opinions; keep it to the point.
9. Action/Instruction — Clearly state what action is expected, by whom and by when.
10. Closing and Signature — End with a courteous closing and the signature with name and designation of the sender.
11. Copies (CC) — Mention the names/designations of the persons or offices to whom copies are to be sent, if required.
12. Format and Neatness — Follow the standard office memo format, correct spelling, grammar and neat presentation.

Methods of Testing Purity of Gold

1. Touchstone (Kasauti) Test – The gold sample is rubbed on a black stone and acid is applied; the colour of the streak is compared with standard gold needles to judge purity. Traditional and cheap, but only approximate.

2. Acid Test – Nitric acid is applied to the gold piece. Pure gold is unaffected, while base metals react and change colour. Commonly used by jewellers.

3. Fire Assay (Cupellation) – A small sample is melted with lead and bone ash at high temperature; base metals are absorbed, leaving pure gold which is weighed. This is the most accurate and is the standard method.

4. X-Ray Fluorescence (XRF) Test – A machine reads the metal's composition without damaging it. Quick and accurate; used by hallmarking centres and banks.

5. Hallmark Certification – The government (through the Nepal Bureau of Standards and Metrology) stamps the purity in carats (e.g., 916 = 22 carat, 999 = 24 carat). This is the legally accepted proof of purity.

6. Water Displacement (Density) Test – The weight of the piece in air and in water gives its density, which indicates purity.

Determinants of Price of Gold

1. International Price – Nepal's gold price is fixed daily on the basis of the London (LBMA) rate; a rise abroad raises the local price.
2. Exchange Rate – Gold is traded in US dollars, so depreciation of the Nepali rupee against the dollar makes gold costlier in Nepal.
3. Demand – Marriage seasons, festivals (Dashain, Tihar), and investment demand push prices up.
4. Supply – Limited domestic production and dependence on imports; restricted supply raises price.
5. Purity/Carat – 24-carat gold is priced higher than 22-carat or 18-carat of the same weight.
6. Making Charges and Taxes – Customs duty, VAT, and jeweller's making charge are added to the base price.
7. Economic Conditions – Inflation, interest rates, and currency weakness make gold a safe investment, raising its price.
8. Government Policy – Import quotas, bans, and monetary policy directly affect the market price.

Benefit to the bank

• Fully secured loan: Rs 3,50,000 was lent against gold worth Rs 5,00,000, so the loan-to-value ratio was $\frac{3{,}50{,}000}{5{,}00{,}000} \times 100 = 70\%$. The bank had a 30% margin, so the principal was safe.
• Interest income: The bank earned interest on Rs 3,50,000 for the first 5 days and on Rs 50,000 for the next 5 days. At, for example, 12% p.a. this is about $\frac{3{,}50{,}000 \times 12 \times 5}{100 \times 365} \approx$ Rs 575 plus $\frac{50{,}000 \times 12 \times 5}{100 \times 365} \approx$ Rs 82. Lending in the Dashain season, when demand for loans is high, gave this income at almost no risk.
• Lower risk after repayment: The remaining Rs 50,000 is covered by gold worth Rs 5,00,000, i.e. ten times the loan. Credit risk is practically nil, and the excess gold may be released to the customer on request.
• Liquidity: The Rs 3,00,000 returned early can be lent again to other customers at the festival peak.

Loss: There is no actual loss. The only cost is the opportunity cost of holding the gold under custody and of the interest not earned had the full loan continued, which is not a real loss.

Conclusion: The transaction was beneficial: interest was earned, the loan stayed fully secured and funds were recycled.

Under the Banking Offence and Punishment Act, 2064, the following acts, among others, are banking offences (any five):

1. Forgery in banking transactions: Preparing or using forged documents, false signatures or false cheques to obtain a loan, withdraw money or otherwise cheat the bank.
2. Misappropriation of bank funds or property: A director, officer or employee using deposits or the bank's property for personal gain or in an unauthorised manner.
3. Obtaining a loan on false information: Giving false details of collateral, income or purpose to get a loan, or a banker knowingly approving such a loan.
4. Operating banking business without a licence: Accepting deposits from the public or carrying on banking business without the licence of Nepal Rastra Bank.
5. Breach of customer secrecy: Disclosing a customer's account or transaction details without consent, except where the law permits.
6. Obstructing banking activity or inspection: Preventing officials from doing their duty, obstructing NRB inspection, or hiding or destroying records.
7. Cheating through electronic banking: Misusing cards, ATMs or electronic transfers to defraud the bank or customers.

Each offence carries punishment by fine, imprisonment or both, according to the seriousness of the offence and the amount involved.

Main features of the Asset (Money) Laundering Prevention Act, 2064

1. Criminalises money laundering: It defines money laundering as an offence and prescribes fine and imprisonment.
2. Covers predicate offences: Proceeds of listed crimes such as corruption, smuggling, tax evasion, narcotics, fraud and terrorism fall within its scope.
3. Terrorist financing: Related provisions deal with funds used to finance terrorism.
4. Reporting entities: Banks, financial institutions, insurers, securities and cooperative bodies and other prescribed entities must follow the Act.
5. Customer identification (KYC): Reporting entities must identify and verify customers, with enhanced diligence for high-risk customers.
6. Record keeping: Transaction and identity records must be kept for the prescribed period.
7. Suspicious transaction reporting: Suspicious and threshold transactions must be reported to the Financial Information Unit (FIU).
8. Institutional arrangement: It provides for the FIU in Nepal Rastra Bank and a National Coordination Committee.
9. Freezing and confiscation: Property connected to laundering can be frozen, seized and confiscated.
10. International cooperation: It permits mutual legal assistance and information exchange with other countries.

Banking practices in Nepal before the establishment of Nepal Bank Limited (1994 BS / 1937 AD)

Before the establishment of Nepal Bank Limited in 1994 BS (1937 AD), Nepal had no organised or institutional banking system in the modern sense. The credit and money-handling functions were performed by traditional, indigenous institutions and individuals. The main features of such practices were:

1. Absence of modern banks: There was no bank in the modern sense — no institution accepting public deposits, issuing loans on a large scale, or issuing notes. The country's currency and credit needs were met through traditional means.

2. Indigenous bankers and money lenders (Sahu/Sethi): Wealthy merchants, landlords and "Sahus" acted as bankers. They gave loans to farmers, traders and others at very high rates of interest, often taking land or jewellery as security. This led to exploitation and indebtedness among peasants.

3. Guthi and Dharmada institutions: Religious and charitable trusts (Guthi) sometimes lent money or grain to their members at low or no interest, mainly for religious and social purposes rather than commercial profit.

4. Hundi system: The "Hundi" was used as an instrument for remitting money from one place to another. Traders used Hundis to transfer funds between Nepal, India and Tibet, which served as a form of early bill of exchange.

5. Use of coins and barter: Transactions were carried out with coins (mohar, paisa) issued by the government, and in rural areas barter and grain (paddy, rice) were also used as a medium of exchange and store of value.

6. No deposit banking or note issue: There was no system of accepting deposits from the general public or of issuing bank notes. The government itself issued coins, and the treasury handled state funds.

7. Dominance of Indian currency and moneylenders: Indian currency circulated widely in Nepal, and Indian moneylenders and bankers also played a big role in the credit market, which drained wealth and created dependence.

In short, before the Nepal Bank Limited, banking in Nepal was unorganised, exploitative and limited to moneylending, Hundis and trust-based lending. The establishment of Nepal Bank Limited in 1994 BS marked the beginning of organised banking in the country.

Nepal Bank Limited (NBL) is Nepal's oldest commercial bank, established in 1994 BS (1937 AD) and now a government-owned national-level commercial bank. Its main financial indicators, as reported in its latest annual report, can be grouped as follows.

Comment on trends

• Deposits and loans are rising, showing public trust and continued expansion.
• Profit is healthy, but the return on equity is low relative to private banks.
• Asset quality needs attention: NPL should be reduced through stronger recovery and credit monitoring.
• Capital adequacy is comfortable, giving room for lending growth.
• Wide branch coverage, including rural areas, supports financial inclusion and low-cost deposits.

(d) 2046

Nepal adopted the open and flexible (liberal) banking policy in 2046 BS (1990 AD) as part of the economic liberalisation programme, which allowed private and joint-venture banks to operate. (The earlier open banking step was in 2030 BS, but the "open and flexible" policy is dated 2046 BS.)

(c) Himalayan Bank Limited

Himalayan Bank Limited introduced the first credit card in Nepal in 1990 (MasterCard), making it the pioneer of card-based payments in the country.

(b) Nabil Bank

Nabil Bank was conferred the "Bank of the Year 2016 — Nepal" award by The Banker magazine (Financial Times, London), in recognition of its strong financial performance, capital base and banking practices.

Nepal Rastra Bank (NRB) acts as the "bank of the banks" — the central bank for all commercial banks and financial institutions in Nepal. Its main functions in this role are:

1. Banker to commercial banks — NRB holds the current accounts of commercial banks and financial institutions, and settles their inter-bank transactions and clearing house operations.

2. Lender of last resort — When a bank faces a liquidity crisis or temporary shortage of funds, NRB provides emergency loans against eligible securities, protecting depositors and maintaining public confidence.

3. Supervisor and regulator — NRB grants licences to banks, issues directives, inspects and supervises their operations, and takes corrective action against weak or defaulting institutions to ensure a sound banking system.

4. Custodian of cash reserves — Banks must keep a certain percentage of their deposits as cash reserve ratio (CRR) with NRB, which controls their lending capacity and money supply.

5. Central clearing house — NRB operates the clearing house for inter-bank cheques and transfers, enabling quick and safe settlement of payments among banks.

6. Adviser and lender to government banks — It provides policy guidance to banks and financial institutions and acts as the banker, fiscal agent and adviser to the Government of Nepal.

Through these functions, NRB maintains the stability, liquidity and credibility of the entire banking system of the country.

Differences between Bank Cheque and Bank Draft

Conclusion: A cheque is a customer's order on the bank and carries the risk of dishonour, whereas a draft is the bank's own guaranteed instrument, safer but costlier and non-transferable.

A balance sheet is a statement that shows the assets, liabilities and equity of a bank or financial institution (BFI) at a particular date. Its main objectives are:

1. To disclose the true and fair financial position
   It shows what the BFI owns (cash, loans and advances, investments, fixed assets), what it owes (deposits, borrowings, bills payable) and its net worth or capital fund. This helps stakeholders know the exact financial condition of the institution.

2. To assess liquidity and solvency
   The balance sheet helps measure whether the BFI can meet depositors’ withdrawals, loan demands and other short-term and long-term obligations. It also indicates capital adequacy and the ability to absorb losses.

3. To measure profitability and operating efficiency
   By comparing assets, liabilities and equity with income and expenses, it helps calculate ratios such as ROA, ROE and net interest margin. This shows how efficiently the BFI is using its resources.

4. To support decision-making by stakeholders
   Management uses it for planning, control and policy formulation. Depositors, investors, creditors, shareholders and regulators use it to judge safety, return, creditworthiness and financial stability.

5. To ensure regulatory compliance and transparency
   BFIs must prepare the balance sheet as per Nepal Rastra Bank directives, the Bank and Financial Institution Act, company law and tax laws. It promotes accountability, good governance and public confidence, and helps in decisions regarding reserves, provisions and dividend distribution.

Thus, the balance sheet is not only a legal requirement but also an important tool for financial stability, depositor protection and informed decision-making in banks and financial institutions.