Legal Measures of Nepalese Financial System: An Overview

Abstract

Nepal has banks and financial institutions which are regulated by Nepal Rastra Bank under Nepal Rastra Bank Act, 2058 BS and Banks and Financial Institutions Act, 2073 BS. There are four categories of banks and financial institutions in Nepal which are Class ‘A’, Class ‘B’, Class ‘C’ and Class ‘D’ institutions. Class ‘A’ refers to commercial banks, Class ‘B’ refers to Development Banks, Class ‘C’ refers to Finance Companies and Class ‘D’ refers to Micro Finance Companies. Deposit Insurance and Credit Guarantee Corporation undertakes credit guarantee for loans provided to priority sector by commercial banks under Deposit and Credit Guarantee Funds Act, 2073. Currently there is compulsory provision to make deposit guarantee of 3 Lakh of each customer account. Nepal has also non banking institutions. Citizen Investment Trust encourages people to save and mobilize savings for productive activities and Employees Provident Fund work as an employee trust to render post-retirement benefits to its clients. Citizen Investment Trust Act, 2047 and Employees Provident Fund Act, 2019 are governing laws. Insurance Business is playing important contribution in Nepalese financial system. Insurance Board is the regulators of insurance companies, which are established under Insurance Act, 2049. Moreover, Securities business is also growing in Nepal. Primary, Secondary and Over the Counter market are used for transaction of securities in Nepal which are operated under Securities Act, 2063. The liberalization policy adopted by the Government of Nepal in 1980’s have created supportive and conducive legal regime for banking sector. Consequently, joint venture banks have been established with foreign investment. Currently Nepal has accepted three pillar economies which are private, public and cooperative sectors. So, it is following mixed economy to run the country which is applicable even in banking business as well.