Meaning of Bank

There is no consensus on the origin of the word "bank." One ideology suggests that the word "bank" is derived from the Swiss words "bancus" or "banc." It is said that they were the first to use the word "bank" in commerce. Similarly, some believe that the word "bank" is derived from the French word "banque" and the Italian word "banco." 

The literal meaning of the word "bank" as we use it in everyday speech is "trust me." Initially, a bank was a place for financial transactions established with the trust of everyone in society.

A bank is a financial institution that accepts consumer money as deposits in various accounts and has the capacity to make full payments to depositors when needed.

According to C.R. Crowther, "A banker is a dealer in debts, his own and of other people's. The banker's business is, therefore, to take the debts of other people, to offer his own in exchange, and thereby to create money."

Classification of Banks

Various types of economic activities take place in our society. These economic activities are related to banks. Some people go to banks to take loans to run industries and businesses, while others go to banks to save their income. Some take loans from banks to build houses, while others take loans from banks for commercial animal husbandry and farming. 

Some need to exchange travelers' checks for going abroad, while others go to banks for education loans to study abroad. Remittance amounts sent from abroad also have to be received from banks and financial institutions.

A single type of bank cannot perform the functions of various types of economic activities in society. Banks are established representing different sectors to provide simple, accessible, and specialized services to the economic transactions of people from different levels and strata in our society.

No bank can perform various functions simultaneously to meet the needs of different types of customers. Therefore, banks are divided into different categories based on their functions, objectives, priorities, and specialization. 

The banks are classified as follows according to the standards set by Nepal Rastra Bank:

1. Central Bank

A central bank is established in any country to manage all financial institutions and financial transactions. Nepal's central bank is Nepal Rastra Bank. 

Central bank was established in 2013 under the Nepal Rastra Bank Act 2012. This central bank, which is wholly owned by the Government of Nepal, has its head office in Baluwatar, Kathmandu, and its banking office in Thapathali, Kathmandu. 

The Rastra Bank also has branch offices in various other cities in the country. All commercial banks and financial institutions in Nepal operate under the permission, direction, rules, and control of the Rastra Bank. The central bank acts as the guardian of all financial institutions.

2. Commercial Bank

Commercial banks can only operate after obtaining permission from the central bank. The main objective of a commercial bank is to collect deposits, provide loans, and earn profits from them. 

According to Nepal Rastra Bank's statistics as of May 2023, there are 21 commercial banks operating as "A" class financial institutions in Nepal. Nepal Bank Limited, established in 1937, is the first commercial bank in Nepal. 

Among these 21 commercial banks, Nepal Bank Limited, Rastriya Banijya Bank, and Agricultural Development Bank are operated under government ownership, while the remaining banks are operated by the private sector.

3. Development Bank

The central bank's permission is also required to establish a development bank. Agricultural Development Bank and Industrial Development Bank were established with the feeling that a separate special bank was needed to develop industrial and agricultural sectors in the country. 

Agricultural Development Bank helps farmers improve their living standards by lending them loans. This bank provides short-term, medium-term, and long-term loans to buy modern tools, fertilizers, seeds, medicines, and for irrigation. 

Similarly, Industrial Development Bank encourages investment in industries by identifying investable areas, providing loans at concessional interest rates, and arranging concessions for the purchase of raw materials. This bank was established for the development of industries in the country. 

Recently, development banks have also been operated by the private sector. As of mid-July 2023, there are 17 development banks operating as "B" class financial institutions in Nepal. This number has decreased from 36 due to mergers and acquisitions aimed at strengthening the banking sector. 

Among these, eight development banks operate at the national level, while the remaining serve specific provinces or districts.

4. Finance Companies

Nepal Rastra Bank has recognized finance companies as "C" class financial institutions. These companies can conduct limited financial transactions by saving money from the general public and investing in productive sectors. 

There are 25 such companies. All these companies in Nepal are operated by the private sector.

5. Microfinance Financial Institutions

Nepal Rastra Bank has recognized microfinance financial institutions as "D" class financial institutions. These companies can conduct limited financial transactions by saving money from the general public and investing in sectors prioritized by the Rastra Bank. 

There are 64 such companies. All these companies are operated by the private sector.