Grameen Bikas Laghubitta Bittiya Sanstha 6th Level PDF Notes

Chapter 1. Banking concept and banking development in Nepal

Banking concept

A bank is generally defined as a financial institution licensed to accept deposits and make loans.
Banking is a process of safekeeping of money, lending and providing various types of financial services. It is also known as a form of financial intermediation that takes money from savers and lends it to investors.
A bank refers to a financial intermediary, which is primarily a deposit acceptor who provides services and provides funds in the form of credit flows to those who require funds.

History of Banking in Nepal: A Phased Analysis

Development of modern banking system in Nepal is a long and complex process. Although it began with ancient metal currency, the development of modern banking only began in the mid-20th century.

The history of banking in Nepal can be divided into the following stages:

1. Ancient times:

Metal Currency: Different metal coins were in circulation during the Malla period.
Tejarath Adda: Established during Randeep Singh’s time, this adda used to give loans to government employees.
Mint Department: Established in 1989 for minting of coins.

2. Beginning of Modern Banking:

Nepal Bank Limited (1994): Nepal’s first bank. It introduced formal banking services.
First Paper Notes (2002): The first paper notes were issued during the reign of Juddhashamsher and King Tribhuvan.

3. Establishment and Development of Nepal Rastra Bank:

Nepal Rashtra Bank (2013): The central bank of Nepal was established and the banking system started to be regulated.
Establishment of Development Banks: Development banks like Industrial Development Corporation, Agricultural Development Bank were established and started investing in various sectors.

4. Liberalization and expansion of banking sector:

2040s: Liberalization of the banking sector was implemented and many new banks were established.
Joint Investment Banks: Joint investment banks like Nepal Arab Bank (now Nabil Bank) were established.
Rural Development Banks: Rural Development Banks were established to provide financial services to rural areas.

5. Regulation and Reform:

New Nepal Rastra Bank Act 2058: This Act was promulgated to make the performance of Nepal Rastra Bank effective.
Banks and Financial Institutions Act 2063: Regulation was made more systematic by classifying the banking sector into A, B, C and D categories.
Mergers and Acquisitions: As the number of banks increased, the policy of mergers and acquisitions was implemented.

6. Current Status:

Banks of different categories: More than 155 banking institutions are operating under categories A, B, C and D.
Financial Inclusion: About 61% of Nepal’s population has access to financial services.
International Standards: International standards like Basel II and III are in the process of implementation.

Conclusion: Banking sector in Nepal has made significant progress. However, there is still a need for further improvement in areas such as financial inclusion, risk management, technology use.

Chapter 2. Types and Functions of Banks:

Detailed explanation of types of banks in Nepal

Banks in Nepal are divided into different categories based on their scope, size and ownership. This makes it easier for customers to choose the bank that suits their needs.

Types of Banks in Nepal

1. A Class Commercial Bank:

A Class Commercial Bank is the largest and most comprehensive type of bank in Nepal. It provides all types of banking services. These banks provide financial services to individuals, businesses and governments. Example: Nepal Bank Limited, NMB Bank, SBI Bank Nepal etc.

A Class Commercial Bank Main Functions:

Class A commercial banks are the backbone of Nepal’s economy. They provide a variety of financial services to individuals, businesses and governments. Here is a brief description of the main functions of Class A commercial banks:

Collection of deposits: Banks collect various types of deposits from individuals and businesses such as savings accounts, current accounts, fixed deposits etc.
Lending: Banks provide loans in the areas of personal, commercial, agriculture, housing etc.
Payment Services: Banks provide various payment services like check clearing, draft issuance, remittance services, digital payments (mobile banking, internet banking, debit card, credit card).
Locker facility: Banks provide locker facility for safe keeping of customers’ valuables.
Currency Exchange: Banks offer various currency exchange services.
Financial Consulting: Banks provide financial consulting services related to investments, insurance, tax planning etc.
Bank Guarantee: Banks provide guarantees on business transactions.
Social Responsibility: Banks undertake social responsibility programs in areas such as education, health, environment protection.
Digital Banking: Most of the banks now offer digital banking services like mobile banking, internet banking.
Other Services: Banks also provide other additional services like securities trading, mutual funds, insurance services etc.

2. B Category Development Bank:

Commercial banks in Nepal are divided into different categories based on their capital and turnover. Among them, ‘B’ category commercial banks are smaller in size than ‘A’ category commercial banks. They have less capital and their business is also concentrated in a limited area. However, these banks also play an important role in the Nepalese economy. Example: Agricultural Development Bank

B Class Commercial Bank Main Functions

Class B commercial banks perform many of the same functions as Class A banks. However, their scope is relatively small. Their main functions are as follows:

Collection of deposits: Like A category banks, B category banks also collect savings accounts, current accounts, fixed deposits etc.
Lending: They provide loans to individuals, businesses and small and medium enterprises.
Payment Services: Provides payment services like check clearing, draft issuance, remittance services etc.
Locker facility: Locker facilities are provided to keep the valuables of the customers safe.
Currency Exchange: Provides exchange services of various currencies.
Financial Consulting: Provides financial consulting services related to investments, insurance, tax planning etc.

3. C Class Finance Company:

Financial institutions in Nepal are divided into different categories based on their capital and turnover. Among them, ‘C’ category finance companies are the smallest in size. They have the least amount of capital and their business is also concentrated in a very limited area. They mainly provide small scale financial services in rural areas.

Main Functions of Class C Commercial Banks:

C category finance companies are organizations that provide financial services at a small scale in the financial sector of Nepal. They mainly provide small scale financial services in rural areas. Here is a brief description of the 10 main functions of a C class finance company:

Loans to Small Farmers: These mainly provide loans to small farmers for their agricultural production needs.
Loans to Home Industries: They provide necessary loans to people who want to start home industries.
Loans to Small Businessmen: They provide loans to small businessmen that they need to expand their business.
Operation of Savings Accounts: They operate savings accounts at the local level and collect deposits.
Fixed Deposits: Collect fixed deposits from customers.
Remittance Services: Some finance companies also offer remittance services.
Collaboration with Savings and Credit Co-operative Societies: They can work together with Savings and Credit Co-operative Societies.
Financial Literacy Program: Provides financial literacy information to the local community.
Insurance Services: Some finance companies may also provide insurance services.
Microfinance Services: Can provide microfinance services targeting women entrepreneurs.

4. D Category Microfinance Financial Institutions:

Category D Microfinance Financial Institutions are microfinance financial institutions operating in Nepal that provide small loans mainly targeting the poor, women, Dalits and marginalized communities in rural areas. These institutions have played an important role in the microfinance sector and contributed to financial inclusion.

Main Functions of Class D Microfinance Financial Institutions:

Loans to Small Farmers: They provide loans required for agricultural production.
Loans to Home Industries: They provide necessary loans to people who want to start home industries.
Loans to Small Businessmen: They provide loans to small businessmen that they need to expand their business.
Operation of Savings Accounts: They operate savings accounts at the local level and collect deposits.
Group Based Loans: Loans are provided to individuals in a group on a collective guarantee.
Women Empowerment: Conducts special loan programs targeting women entrepreneurs.
Financial Literacy Program: Provides financial literacy information to the local community.
Micro Insurance Services: Provides micro insurance services like agriculture insurance, health insurance.
Social Responsibility Programs: Conducts various social responsibility programs for the development of the local community.
Remittance Services: Some microfinance financial institutions also offer remittance services.

5. Infrastructure Development Bank:

Infrastructure Development Bank is a special type of bank established in Nepal whose main objective is to invest in infrastructure development of the country. This bank invests in major infrastructure projects like roads, bridges, electricity, irrigation. It contributes significantly to the overall development of the country.

Main Functions of Infrastructure Development Bank:

Investment in infrastructure projects: Directly invests in large infrastructure projects like roads, bridges, electricity, irrigation, water supply.
Loans for infrastructure development: Provides loans to private sector companies for infrastructure development.
Infrastructure Development Consultancy Services: Provides consultancy services in infrastructure project feasibility study, design and implementation.
Infrastructure Development Fund Operation: Operates the funds required for infrastructure development.
Attracting Foreign Investment: Initiatives are taken to attract foreign investment for infrastructure development.
Investing in Public -Private Partnership (PPP) model: Facilitates the development of infrastructure projects through public-private partnership.
Policy recommendations on infrastructure development: Provides policy recommendations to the government on infrastructure development.
Studies and Research on Infrastructure Development: Conducts various studies and research on infrastructure development.
Spreading public awareness about infrastructure development: It works to spread public awareness about the importance of infrastructure development.
Collaboration with International Organizations: Works in collaboration with international organizations like World Bank, Asian Development Bank for infrastructure development.

Conclusion:

The variety of banks in Nepal helps customers to choose the right bank according to their needs. This will help increase financial access and help in the economic development of the country.

Chapter 3. Role played by banks and financial institutions in resource management and mobilization for capital formation

The Role of Banks and Financial Institutions in Capital Formation: Resource Management and Mobilization:

Banks and financial institutions are the backbone of the economy. They not only manage the money supply but also contribute significantly to the economic development of the country. At the same time, their role in capital formation is also very important.

What is capital formation?

Capital formation is the process of increasing production capacity in any economy by investing in physical infrastructure, industry, business etc. It contributes significantly to long-term economic growth and development.

Role of banks and financial institutions in capital formation

1. Resource Management:

Collection of Deposits: Banks collect various types of deposits (savings accounts, fixed deposits etc.) from the public. The amount collected in this way is again provided as loans to businessmen, industrialists and projects.
Lending: Banks provide loans to various industries, businesses and projects. It helps them expand and develop.
Issuing Shares: Banks issue shares to increase their ownership and raise capital.
Issuing bonds: Banks issue bonds to raise long-term funds.
Borrowing from International Financial Institutions: They invest in big projects like infrastructure development by taking loans from international financial institutions like World Bank, Asian Development Bank.
Attracting Foreign Investment: Banks offer a variety of financial instruments to attract foreign investors.
Infrastructure Development Fund Operations: Banks operate funds required for infrastructure development.

2. Mobilization:

Credit Evaluation: Banks evaluate the creditworthiness of a borrower or institution before granting a loan.
Loan Disbursement: Provides loans to eligible customers.
Debt Recovery: The borrower collects the loan and interest from the individual or organization.
Deposit Protection: Protects customers’ deposits.
Providing financial services: Provides various types of financial services to customers (eg: ATM facility, Internet banking, mobile banking).
Development of new products and services: Develops new products and services to meet customer needs.
Financial Literacy Program: Provides information on financial literacy to clients.
Importance of resource management and mobilization
Creation of Investable Funds: Banks create investable funds by collecting deposits.
Circulation in the Economy: Banks keep the economic activities going by circulating the collected funds in the economy.
Encouraging Entrepreneurship: Banks encourage entrepreneurship by providing loans to small and medium enterprises.
Economic Development: Banks contribute to the economic development of a country by contributing to capital formation.

conclusion

Banks and financial institutions play an important role in capital formation through resource management and mobilization. They contribute to the economic development of the country by investing the collected funds in the productive sector. Banks thus act as the backbone of the economy.

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Grameen Bikas Laghubitta Bittiya Sanstha 6th Level PDF Notes