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The Nepali financial system consists of banking and non banking sector.
Banking sector consists of Nepal Rastra Bank (NRB) as the Central Bank
and the Commercial Banks. The non banking sector includes, financial
institutions licensed by NRB like Development Banks, Finance Companies,
Microfinance Development Banks, Coop Financial Institutions, NGOs
undertaking banking activities and those under different Acts like Insurance
Companies, Citizens Investment Trust, Postal Savings Offices, Employees
Provident Fund, Nepal Stock Exchange and Commodity Markets.
History
The origin of the modern Nepali Financial System can be traced to the
establishing of Nepal Bank Ltd as the first commercial bank of the country.
It was established under Nepal Bank Act, 1994 B.S. The Government of
Nepal owned 52% and general public 48%. It started the banking system in
the country and also public private partnership in financial sector. In
addition to commercial banking operations, it was also permitted to
function as banker to the Government.
Establishment of Nepal Rastra Bank under the NRB Act 2012 was another
important milestone for the development of banking system in Nepal.
Nepal Industrial Development Corporation was established in 2016 B.S.
and it brought in the concept of development banking in the country. Its
objectives were to provide technical and financial assistance to industries.
Though it was licensed to undertake banking transactions, its activities are
subdued.
Thereafter Cooperative Bank was established, which commenced the
compulsory savings scheme for farmers. Later, this was merged with
Agricultural Development Bank Ltd. The latter was primarily for
Development of Agricultural Sector. It has wide reach in both urban and
rural areas and in addition to development banking is actively involved in
Commercial Banking also.
Rastriya Banijya Bank was established as a fully government owned entity
in 2022 B.S. for Development of Commercial Banking Activities. It has a
wide branch network all over the country. A savings institution established
as a fully government owned entity in 2022 B.S. for Development of
Commercial Banking activities and has a wide branch network all over the
country.
In the aftermath of liberalization of economy, Nepal Arab Bank (presently
NABIL Bank) was established in 2041 B.S as a first foreign joint venture
bank. This was followed by other banks like Nepal Indosuez, Nepal
Grindlays etc.
A number of Commercial Banks were also established by Nepali Investors
leading to an emergence of a growing and competitive commercial banking
sector in the country.
In the last decade there was phenomenal growth of Financial Service
Industry and the present position of various participants including their
share of business is indicated below:
Number
Share of Business
Commercial Banks
Development
Banks
Finance
Companies
Micro
Finance
Development
Banks
Savings
and
Credits
Cooperatives
NGOs
Rural
Development
Banks
Total
32
87
80.8%
8.0%
79
9.6%
21
1.6%
16
Nepal
Rastra Bank
Under
the
provisions of
38
Nepal Rastra
Bank
Act
2012, Nepal
Rastra Bank
(NRB) was
established in
2013 Baisakh
14 B.S. as
254
Central Bank
of
the
Country. It played a crucial role for Development Banking Industry and has
effectively circulated Nepali Currency. NRB Act 2058 replaced the earlier
act. This has made NRB a more autonomous and responsible regulator as
well as supervisor of Financial Sector.
Section 4 of NRB Act 2058 spells out the following as its objectives:
i)
To formulate necessary monetary and foreign exchange policies in
order to maintain the stability of the price and balance of payment
for sustainable development of economy and manage it.
ii)
To promote stability and liquidity required in banking and financial
sector.
iii) To develop a secure healthy and efficient system of payment.
iv) To regulate, inspect, supervise and monitor the banking and financial
system.
v)
To promote entire banking and financial system of Nepal and to
enhance its public credibility.
To achieve these objectives the functions, duties and rights of the bank
have been details as under:
i) To issue bank notes and coins.
ii) To formulate and implement monetary and foreign exchange
policies.
iii) To determine the system of foreign exchange rate
iv) To manage and operate the foreign exchange reserves.
v) To issue license to banks and financial institutions and to regulate,
inspect, supervise and monitor their transactions.
vi) To act as a banker, advisor and agent of Government of Nepal.
vii) To act as banker to banks and financial institutions and to act as a
lender of last resort.
viii) To establish and promote a system of payment, clearing and
settlement and to regulate these activities.
As mentioned above Nepal's Financial System consists of banking and non
banking sectors. The banking sector includes NRB and A class Commercial
Banks. Non Banking sector consists of B category Development Banks, C
category Finance Companies, D category Microcredit Development Banks
(including Grameena Bikas Banks), Savings and Credits Co-operatives
(SACCOS) with limited banking license, and FINGOS with limited
banking activities and other financial institutions like Insurance companies,
Employees Provident Fund Organization, Citizens' Investment Trust, Postal
Savings Offices, Nepal Stock Exchange and the Commodity Exchange.
The semi formal sector consists of savings, credit or other cooperatives
registered with registrar of cooperatives. The informal sector consists of
informal groups like Dhukuti groups who pool their savings and extend
credit to members, moneylenders and individual.
RMDC
The Rural Microfinance Development Centre is an apex wholesale lender
and capacity building institutions for promotions and development of
Nepal's microfinance sector. It was established with ADB support in 1998.
It is promoted by NRB and Commercial Banks. Major activities include
providing wholesale loans, institutional capacity building support to partner
institutions, training support to end users in areas like adult literacy,
entrepreneurial and skills development, group development etc.
Capital Market
Introduction
indefinitematurity.
Capital markets are financial markets for the buying and selling of longterm debt or equity-backedsecurities. These markets channel the wealth of savers to those
who can put it to long-term productive use, such as companies/ governments making longterm investments.[a] Capital markets are defined as markets in which money is provided for
periods longer than a year.[1] Financial regulators, such as the UK's Bank of England (BoE)
or the U.S. Securities and Exchange Commission (SEC), oversee the capital markets in
their jurisdictions to protect investors against fraud, among other duties.
Modern capital markets are almost invariably hosted on computer-based electronic
trading systems; most can be accessed only by entities within the financial sector or the
treasury departments of governments and corporations, but some can be accessed directly
by the public.[b] There are many thousands of such systems, most serving only small parts
of the overall capital markets. Entities hosting the systems include stock exchanges,
investment banks, and government departments. Physically the systems are hosted all
over the world, though they tend to be concentrated in financial centres like London, New
York, and Hong Kong.
A key division within the capital markets is between the primary markets and secondary
markets. In primary markets, new stock or bond issues are sold to investors, often via a
mechanism known as underwriting. The main entities seeking to raise long-term funds on
the primary capital markets are governments (which may be municipal, local or national)
and business enterprises (companies). Governments issue only bonds, whereas
companies often issue either equity or bonds. The main entities purchasing the bonds or
stock include pension funds, hedge funds,sovereign wealth funds, and less commonly
wealthy individuals and investment banks trading on their own behalf. In the secondary
markets, existing securities are sold and bought among investors or traders, usually on
an exchange, over-the-counter, or elsewhere. The existence of secondary markets
increases the willingness of investors in primary markets, as they know they are likely to be
able to swiftly cash out their investments if the need arises. [2]
Role
Every capital market in the world is monitored by financial regulators and their respective
governance organization. The purpose of such regulation is to protect investors from fraud
and deception. Financial regulatory bodies are also charged with minimizing financial
losses, issuing licenses to financial service providers, and enforcing applicable laws.
and sell securities as they are continuously available. Basically capital market
transactions are related to the stock exchanges. Thus marketability in the capital
market becomes easy.
Role and Functions of Mutual Funds
1. Concept and Role of Mutual Funds
2. 3. Meaning A Mutual Fund is a trust that pools the savings of a number of
investors who share a common financial goal. The money thus collected is then
invested in capital market instruments such as shares, debentures and other
securities. The income earned through these investments and the capital
appreciation realized are shared by its unit holders in proportion to the number of
units owned by them. Thus a Mutual Fund is the most suitable investment for the
common man as it offers an opportunity to invest in a diversified, professionally
managed basket of securities at a relatively low cost. 3
3. 4. MF Operation Flow Chart 4
4. 5. Role of Mutual funds The overall economic development is promoted. The
mutual fund industry itself, offers livelihood to a large number of employees of
mutual funds, distributors, registrars and various other service providers. Higher
employment, income and output in the economy boost the revenue collection of the
government through taxes and other means. Mutual funds can also act as a
market stabilizer, and are viewed as a key participant in the capital market of any
economy. 5
5. 6. Advantage of Mutual Fund Professional Management Diversification
Economies of scale Low Costs Liquidity Transparency Flexibility Tax benefits
Well regulated(systematic approach) 6
6. 7. Limitation of a Mutual Fund Lack of Portfolio customization Choice Overload
No control over cost Dilution 7
7. 8. Mutual Fund Scheme Mutual funds seek to mobilize money from all possible
investors. Various investors have different investment preferences. In order to
accommodate these preferences, mutual funds mobilize different pools of money.
Each such pool of money is called a mutual fund scheme. Every scheme has a
pre-announced investment objective. 8
8. 9. Frequently Used Terms : NAV:- Net Asset Value is the market value of the
assets of the scheme minus its liabilities. The per unit NAV is the net asset value of
the scheme divided by the number of units outstanding on the valuation date. Sale
Price:- Is the price you pay when you invest in a scheme. Also called Offer Price. It
may include a sales load. Repurchase Price :-Is the price at which units under
open-ended schemes are repurchased by the Mutual Fund. Such prices are NAV
related. Redemption Price:- Is the price at which close-ended schemes redeem
their units on maturity. Such prices are NAV related. Sales Load :- Is a charge
collected by a scheme when it sells the units. Also called, Front-end load.
Schemes that do not charge a load are called No Load schemes. Repurchase or
Back-endLoad:- Is a charge collected by a scheme when it buys back the units
from the unit holders. 9
9. 10. How do Mutual Schemes Operate ? Mutual fund schemes announce their
investment objective and seek investments from the public. The investment that an
investor makes in a scheme is translated into a certain number of Units in the
scheme. Under the law, every unit has a face value of Rs10. (However, older
schemes in the market may have a different face value). The face value is relevant
from an accounting perspective. The number of units multiplied by its face value
(Rs10) is the capital of the scheme its Unit Capital. The scheme earns interest
income or dividend income on the investments it holds. Further, when it purchases
and sells investments, it leads to realized capital gains or realized capital losses as
the case may be. Investments owned by the scheme may be quoted in the market
at higher than the cost paid. Such gains in values on securities held are called
valuation gains. Similarly, there can be valuation losses.
Role and Functions of Insurance Companies
ADVERTISEMENTS:
Insurance does not only protect against risks and uncertainties, but
also provides an investment channel too. Life insurance enables
systematic savings due to payment of regular premium. Life insurance
provides a mode of investment. It develops a habit of saving money by
paying premium. The insured get the lump sum amount at the maturity
of the contract. Thus life insurance encourages savings.
5. Medical support:
A medical insurance considered essential in managing risk in health.
Anyone can be a victim of critical illness unexpectedly. And rising
medical expense is of great concern. Medical Insurance is one of the
insurance policies that cater for different type of health risks. The
insured gets a medical support in case of medical insurance policy.
6. Spreading of risk:
Insurance facilitates spreading of risk from the insured to the insurer.
Banker-Customer Relationship
Bankers Special Relationship
Payment and Collection of Cheques and Other Negotiable Instruments
Opening of Accounts of Various Types of Customers
Ancillary Services
Principles of Lending, Working Capital Assessment and Credit Monitoring
Priority Sector Advances
Agricultural Finance
Micro, Small & Medium Enterprises
Government Sponsored Schemes
Self-Help Groups
Credit Cards, Home Loans, Personal Loans, Consumer Loans
Documentation
Different Modes of Charging Securities
Types of Collaterals and their Characteristics
Non-Performing Assets Financial Inclusion
of