1)Central Bank

2)Commercial Bank (Class A)

3)Development Bank (Class B)
4)Finance Companies (Class C)
5)Micro Credit Development Bank (Class D)

1)Central Bank:- The Nepal Rastra Bank (NRB) was established in Baisakh 14, 2013 B.S. (April
26, 1956 A.D.) as a central bank of Nepal to supervises the banks and financial institutions
(licensed by the NRB) in Nepal and guides monetary policy.Nepal Rastra Bank was established
in 1956 under the Nepal Rastra Bank Act, 1955, to discharge the central banking responsibilities
including guiding the development of the embryonic domestic financial sector. Since inception,
there has been a significant growth in both the number and the activities of the domestic
financial institutions.
2)Commercial Bank (Class A):-A Commercial bank is a type of Bank / Financial Institution 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 large bank,
which more specifically deals with deposit and loan services provided to corporations or
large/middle-sized business – as opposed to individual members of the public/small business –
Retail banking, or Merchant banks. At present there are 29 Commercial Bank in Nepal.

3)Development Bank (Class B):-The bank which is established for the development of
different sectors like industrial, agricultural, infrastructural etc by imitating the modern system
and methodology through financial, technical and administrative assistance is known as
development bank. Development banks in Nepal are playing vital roles for the development of
economy status of Nepal. Nepal has many nationalized and private banking. There are 70
development banks in Nepal.

4)Finance Companies (Class C):-The history of financial institutions is not very old. When
banking sector started carrying out current activities of finance company, large number of
finance companies was established and they expanded at a rapid pace in the developed
countries, UK and USA in 1960. In the context of Nepal, there were few insurance companies
and Karmachari Sanchaya Kosh working as non-banking financial institution before enactment
of Finance Company Act, 2042. Need of Finance Company Act was felt because unauthorized
sector was collecting savings from the common public in the name of Upahar and Dhukuti
programmes. People showed great interest and enthusiasm in these programmes but they were
cheated by most of the organizers of these programmes. Considering peoples’ interest in such
programmes, benefit of mobilizing such savings in productive sector, banking sectors’ inability to
carry out capital market activities and to meet consumers’ need for credit, government felt the
need of finance companies and introduced Finance Company Act, 2042. However, no finance
company set up till 2049 because the act came into being only in 2049 with some
amendments.At Present there are 44 Finance companies in Nepal.

5)Micro Credit Development Bank (Class D):- Nepal is a land locked developing country.
Many people (38%) of Nepal are under poverty region.Most of the poor people lives in rural ares
and have little opportunity. Micro finance (Micro Credit Development Bank) could help poor
people who do not have any collateral, but a willingness to work and a desire to do some
business activities from which He/She will acquire employment as well as income. At present
there are 41 Micro Credit Development Bank in Nepal.

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Functions of Nepalese Financial Institutions (A, B, C & D class)

What is financial institution?

A financial institution is an institution which collects funds from the public and places them in financial
assets, such as deposits, loans, and bonds, rather than tangible property. It is an establishment that
focuses on dealing with financial transactions, such as investments, loans and deposits. Conventionally,
financial institutions are composed of organizations such as banks, trust companies, insurance
companies and investment dealers. Almost everyone has deal with a financial institution on a regular
basis. Everything from depositing money to taking out loans and exchange currencies must be done
through financial institutions. Financial institutions include banks, credit unions, asset management
firms, building societies, and stock brokerages, among others. These institutions are responsible for
distributing financial resources in a planned way to the potential users.

There are a number of institutions that collect and provide funds for the necessary sector or individual.
On the other hand, there are several institutions that act as the middleman and join the deficit and
surplus units. Investing money on behalf of the client is another of the variety of functions of financial
institutions.
 Financial institutions can be categorized as follows:

1. Deposit Taking Institutions

2. Finance and Insurance Institutions

3. Investment Institutions

4. Pension Providing Institutions

5. Risk Management Institutions

At the same time, there are several governmental financial institutions assigned with regulatory and
supervisory functions. These institutions have played a distinct role in fulfilling the financial and
management needs of different industries, and have also shaped the national economic scene.

Functions of financial institutions:

The functions of financial institutions, such as stock exchanges, commodity markets, futures, currency,
and options exchanges are very important for the economy. These institutions are involved in creating
and providing ownership for financial claims. These institutions are also responsible for maintaining
liquidity in the market and managing price change risks. As part of their various services, these
institutions provide investment opportunities and help businesses to generate funds for various
purposes.

The functions of financial institutions like investment banks are also vital and related to the investment
sector. These companies are involved in a number of financial activities, such as underwriting securities,
selling securities to investors, providing brokerage services, and fund raising advice.

Some of the functions of the financial institutions are briefly described below:

1. Liability-Asset transformation
 Financial institutions issue claims to their customers that have characteristics different from those of
their own assets.

2. Size-transformation

They provide large volumes of finance on the basis of small deposits or unit capital.

3. Risk transformation

They distribute risk through diversification and thereby reduce it for savers as in the case of mutual
funds.

4. Maturity transformation

They offer savers alternate forms of deposits according to their liquidity preferences, and provide
borrowers with loans of requisite maturities.

Functions of the ‘A’, ‘B’, ‘C’ and ‘D’ class financial institutions of Nepal

A. The financial institution who get ‘A’ class licensed should carry following functions:

 Accepting deposits with or without interest, and refund such deposits

 Supplying credit as prescribed by the Rastra Bank

 Dealing in foreign exchange, subject to the laws in force

 Supplying credit for hire-purchase, hypothecation, leasing, housing and service business

 Engaging in merchant banking business, subject to the directives of the Rastra Bank

 Issuing guarantees on behalf of its customers, having such customers execute necessary bonds in
consideration thereof, obtaining security, and acquire their movable or immovable assets as collateral or
on mortgage, or the assets of third persons as collateral

 Supplying credit against the guarantee provided by any native or foreign bank or financial institution

 Issuing, accepting, paying, discounting or purchasing and selling letters of credit, bills of exchange,
promissory notes, cheques, travelers cheques, drafts or other financial instruments
 Issuing and accepting credit cards, debit cards, charge cards and other financial instruments, as well, and
appointing agents to discharge functions relating thereto, subject to the directives issued by the Rastra
Bank

 Accepting, making payments and supplying credit through automated teller machines and cash
dispensing machines

 Providing overdraft to persons whom it trusts

 Acting as an agent of the Rastra Bank on the conditions prescribed by the Rastra Bank, and carrying on
governmental and other transactions on behalf of the Government of Nepal

 Remitting or transmitting funds to different places within or outside the State of Nepal through bills of
exchange, cheques or other financial instruments, purchasing and selling gold and silver bullion, shares,
debentures, bonds, etc., and recovering dividends accruing on shares and interest on promissory notes,
debentures, bonds, etc.

 Purchasing, selling or accepting bonds issued by the Government of Nepal or the Rastra Bank

 Arranging for safe deposit vaults

 Supplying credits not exceeding the amount prescribed by the Rastra Bank, against individual or collective
guarantee, for the economic upliftment of the destitute class, low-income families, victims of natural
calamities and inhabitants in any area of the country

 Mobilizing capital through shares, debentures, bonds, loan-bonds, saving-bonds or other financial
instruments within the limit prescribed by the Rastra Bank.

B. The financial institution who get ‘B’ class licensed should carry following functions:

 Subject to the limit prescribed by the Rastra Bank, accepting deposits with or without interest, and refund
such deposits

 Supplying credit, other than hypothecation credit, as prescribed

 Dealing in foreign exchange, subject to the laws in force and the directives given by the Rastra Bank

 Supplying credit for hire-purchase, leasing, housing and service business

 Supplying credits against the guarantee of any native bank or financial institution
 Issuing guarantees on behalf of its customers, having such customers execute necessary bonds in
consideration thereof, obtaining security, and acquiring their movable or immovable assets as collateral
or on mortgage, or the assets of third persons as collateral

 Issuing, accepting, paying, discounting or purchasing and selling bills of exchange, promissory notes,
cheques, travelers cheques, drafts or hundies

 Accepting deposits, making payments and supplying credit through automated teller machines and cash
dispensing machines

 To issue and accept letters of credit, subject to the conditions prescribed by the Rastra Bank

 Transmitting funds within the State of Nepal through bills of exchange, cheques or other financial
instruments, purchasing and selling shares, debentures, bonds, etc., and recovering dividends accruing
on shares and interest on promissory notes, debentures, bonds, etc.

 Purchasing, selling or accepting bonds issued by the Government of Nepal or the Rastra Bank

 Supplying credits not exceeding the amount prescribed by

 the Rastra Bank, against individual or collective guarantee, for the economic upliftment of the destitute
class, low-income families, victims of natural calamities and inhabitants in any area of the country

 Obtaining refinance credit from the Rastra Bank as per necessity, or obtaining or supplying credits to or
from other licensed institutions

 Supplying installment or hire-purchase credit to any person, firm, company or institution for motor
vehicles, machinery, tools, equipment, durable household goods or similar other movable property

 Operating projects such as purchase of lands and construction of buildings for land development and
residential purposes, and selling and managing, or cause to be sold and managed, such lands and
buildings

C. The financial institution who get ‘C’ class licensed should carry following functions:

 Subject to the limit prescribed by the Rastra Bank, accepting deposits with or without interest, and refund
such deposits;

 Supplying credit, other than hypothecation credit, as prescribed;

 Supplying credit for hire-purchase, leasing, housing and service business;

 Carrying on merchant banking business;

 Writing off credit, subject to the bye-laws made by the Board;

 Supplying credits jointly, on the basis of co-financing in collaboration with other licensed institutions in
accordance with the mutual agreement entered into for the division of the collateral pari passu;

 Supplying credits against the guarantee of any native bank or financial institution;

 Obtaining credit against the security of its movable and immovable assets;

 Supplying a fresh credit in lump sum or by installment against the security of the same movable or
immovable property which has already been furnished with, it to the extent covered by the total value
of such security or supplying a fresh credit in lump sum or by installment against the security of the
same movable or immovable property which has already been furnished with any other licensed
institution as security, to the extent covered by the total value of such security;

 Making proper arrangements of its assets, sell or rent the same;

 Issuing, accepting, paying, discounting or purchasing and selling bills of exchange, promissory notes,
cheques, travelers cheques, drafts or other financial instruments;

 Purchasing and selling the Indian rupees;

 Supplying credits not exceeding the amount prescribed by the Rastra Bank, against individual or collective
guarantee, for the economic upliftment of the destitute class, low-income families, victims of natural
calamities and inhabitants in any area of the country;

 Exchanging with the Rastra Bank or any other licensed institutions particulars of, information or notices
on debtors or customers who have obtained credit or any kind of facility from it and other licensed
institutions;

 Supplying installment or hire-purchase credit to any person, firm, company or institution for motor
vehicles, machinery, tools, equipment, durable household goods or similar other movable property;

 Supplying credit to any person, firm, company or institution for purchasing a residential building or
warehouse or purchasing land for constructing such residential building or warehouse;
 Supplying credit (leasing finance) to any person, firm, company or institution for hiring a motor vehicle,
machine, tools, equipment, durable household good or similar movable property, or renting such
movable property;

 Prescribing conditions, as required, in order to protect its interests while supplying credits to any persons
or institutions or doing any transaction with them;

 Issuing guarantees on behalf of its customers, having such customers execute necessary bonds in
consideration thereof, obtaining security, and acquiring their movable or immovable properties as
collateral or on mortgage, or the assets of third persons as collateral;

 Acting as a commission agent of its customers, taking custody of, and arranging for the sale or purchase
of, shares, debentures or securities, and collecting interests, dividends, profits, etc. accruing from
shares, debentures or securities;

 Operating projects such as purchase of lands and construction of buildings for land development and
residential purposes, and selling and managing, or causing to be sold and managed, such lands and
buildings;

 Performing such other functions as may be prescribed by the Rastra Bank.

D. The financial institution who get ‘D’ class licensed should carry following functions:

Supplying credit as prescribed;

Supplying micro-credit, with or without any movable or immovable property as the collateral or
security, for operating any micro-enterprise to any group or members thereof who have regularly saved
for the period prescribed by the Rastra Bank and maintained the prescribed saving;

Obtaining loans or grants from any licensed institution or native or foreign organization, and use such
loans or grants for the supply of micro-credit or for making the same effective; Provided that approval of
the Rastra Bank shall be obtained prior to obtaining loans or grants from any foreign organization.

Prior to supplying micro-credits, evaluating the schemes for which micro-credits have been requested
and determining whether they are feasible;
Engaging in micro-enterprises of such type as may improve the economic condition of low-income
persons;

Holding symposia on micro-enterprises, providing assistance and training in the formulation of schemes,
providing technical know-how and mobilizing technical assistance, as required;

Providing necessary services to a group in respect of the mobilization of micro-credit;

Taking necessary action towards the timely realization of micro-credits;

Monitoring whether micro-credits have been properly utilized, and, if they are found not to have been
properly utilized, issuing necessary directives;

Subject to the limit prescribed by the Rastra Bank, accepting deposits with or without interest, and
refund such deposits;

Obtaining credits by pledging its movable and immovable assets as collateral, and properly managing
the assets;

Writing off credits, subject to the bye-laws framed by the Board;

Exchanging with the Rastra Bank or any other licensed institutions particulars of, information or notices
on debtors or customers who have obtained credit or any kind of facility from it and other licensed
institutions;

Performing such other functions as may be prescribed by the Rastra Bank.