Not very long ago, there were more temples than houses in Nepal. However, times have changed. Nepal is no longer a country of temples, it's a land of rapidly mushrooming financial institutions - with nearly three dozen commercial banks, five dozen development banks, over six dozen finance companies and hundreds of cooperatives already chugging along at full steam. Currently, there are 160 licenced deposit- taking institutions and many more - at least two dozen financial institutions including five A-class commercial banks - are in the pipeline.
The wonder of it is that a small economy like Nepal that is largely dependent on imports, with little industrial base at a time when majority of the industries are downing their shutters, sustains all these financial institutions. The mystery has spawned questions and doubts. "It is high time Nepal Rastra Bank (NRB), the regulatory authority authority of the financial market, analysed the impact of mushrooming financial institutions," Radhesh Pant, president of Nepal Bankers' Association (NBA), said, adding that setting criteria was not enough.
There is so much money in the market that the criteria of Rs 2 billion paid up capital for a commercial bank cannot stop people from opening even commercial banks. People's Bank Nepal Ltd (proposed) - with 898 promoters and Guru Prasad Neupane as its chairman - has a paid up capital of Rs 2 billion.
Mero Bank Ltd (proposed) - with authorised capital of Rs 4 billion and paid up capital of Rs 2.45 billion - has a 1,328 promoters. Century Commercial Bank (proposed) - with authorised capital of Rs 2.5 billion, paid up capital of Rs 2.23 billion (with promoters' Rs 1.561 billion) - is waiting for Letter of Intent (LoI) from the regulatory authority. It has 618 promoters including Dr Prafulla Kumar Kafle, former deputy governor and Nirmal Pradhan.
"Opportunities are decreasing and the number of financial institutions is increasing. I wonder where they will invest," Pant voiced concern. "If we are hit by a financial crisis, the government won't be able to inject money to rescue them, like in the US."
Kamal Gyawali, chief executive officer of Kist Merchant Banking and Finance Ltd that is ready to be upgraded to A-class commercial bank argues that the central bank should make licencing policy more stringent but once a financial institution gets licence it should be allowed free space to survive.
"However, NRB should not rescue sick financial institutions," he said adding that rather it should disseminate information of a bank's financial health promptly to the people. "The central bank sits on all the data but people get to know only when any bank sinks into bad shape," he added. "People have the right to know the condition of their bank."
According to NRB sources, the central bank is serious about the matter and taking stock of the situation. Some experts have even suggested stopping the granting of new licences until existing institutions are analysed. "Let's have a risk-analysis and prepare short, medium and long term policies," Pant added.
The International Monetary Fund (IMF) also showed warned that Nepal is over-banked. "The increase in the number of financial institutions has led to unhealthy competition," it has said. Experts also have said that as the size of the market pie is not increasing, the survival chance of some banks is slim.
Apart from new commercial banks seeking operating licence, existing two C-class finance companies - Kist Merchant Banking and Finance Ltd and Nepal Share Markets - are also ready to be upgraded, making it a total of 30 commercial banks.
Licenced Commercial Banks
1. Nepal Bank Ltd (November 15, 1937)
2. Rastriya Banijya Bank (January 23, 1966)
3. Nabil Bank Ltd (July 16, 1984)
4. Nepal Investment Bank Ltd (February 27, 1986)
5. Standard Chartered Bank Nepal Ltd (January 24, 1986)
6. Himalayan Bank Ltd (January 18, 1993)
7. Nepal SBI Bank Ltd (July 7, 1993)
8. Nepal Bangladesh Bank Ltd (June 6, 1994)
9. Everest Bank Ltd (October 18, 1994)
10. Bank of Kathmandu Ltd (March 3, 1995)
11. Nepal Credit and Commerce Bank (October 14, 1996)
12. Lumbini Bank Ltd (July 17, 1998)
13. NIC Bank Ltd (July 21, 1998)
14. Kumari Bank Ltd (April 3, 2001)
15. Machhapuchhre Bank Ltd (October 3, 2000)
16. Laxmi Bank Ltd (April 3, 2002)
17. Siddhartha Bank Ltd (December 24, 2002)
18. Agriculture Development Bank Ltd (January 21, 1968)
19. Global Bank Ltd (January 2, 2007)
20. Citizens' International Bank Ltd (April 20, 2007)
21. Prime Commercial Bank (September 24, 2007)
22. Bank of Asia Nepal Ltd (October 12, 2007)
23. Sunrise Bank Ltd (October 12, 2007)
24. Development Credit Bank Ltd (Upgraded in 2007)
25. NMB Bank Ltd (Established in 1996/Upgraded on June 2, 2007)
Proposed
* (Proposed) Peoples' Bank Nepal Ltd
* (Proposed) Mero Bank Ltd
* (Proposed) Century Commercial Bank
To be upgraded
* Kist Merchant and Finance Ltd (Established in February 21, 2003)
* Nepal Share Markets and Finance Ltd (
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