History of Commercial Bank

Commercial banks in Nepal have a relatively recent history, dating back to the early 20th century. The first commercial bank in Nepal was the Nepal Bank Limited, which was established in 1937 with support from the government of Nepal and the British government.

However, the development of the banking sector in Nepal was slow until the 1960s, when the country began to open up to foreign investment and trade. In 1966, the Nepal Rastra Bank, the central bank of Nepal, was established to regulate and supervise the banking system in the country.

In the following years, several other commercial banks were established, including the Rastriya Banijya Bank in 1966, the Nepal Bank of Ceylon in 1975 (which later became the Bank of Ceylon), and the Standard Chartered Bank of Nepal in 1987. The liberalization of the Nepalese economy in the early 1990s led to a rapid expansion of the banking sector, with several new commercial banks being established. Today, over two dozen commercial banks are operating in Nepal, providing a wide range of banking services to individuals and businesses.

 The Nepalese banking sector has faced a number of challenges over the years, including political instability, natural disasters, and economic downturns. However, the sector has remained resilient and continues to play a vital role in the country's economy.

Types of Commercial Bank

Commercial banks are financial institutions that provide various banking services to individuals, businesses, and government entities. There are different types of commercial banks, including:

1. Retail or consumer banks:

   These are commercial banks that offer a range of banking services to individual customers, such as checking and savings accounts, loans, credit cards, and mortgages.

2. Corporate or business banks:

   These banks provide banking services to large corporations, small and medium-sized enterprises (SMEs), and other business entities. They offer services such as lending, investment banking, treasury management, and cash management.

3. Investment banks:

   These banks primarily deal with providing investment services to their clients. They provide securities underwriting, mergers and acquisitions (M&A) advisory, and securities trading.

4. Private banks:

   These banks provide personalized banking services to high-net-worth individuals (HNIs) and their families. They offer services such as wealth management, investment management, and estate planning.

5. Cooperative banks:

   These banks are owned and operated by their members, who are typically from a common profession or geographic region. They offer services such as savings and loans, checking accounts, and other banking services.  

6. Development banks:

   These banks focus on providing funding and other support to promote economic development in their countries. They offer services such as financing for infrastructure projects, SMEs, and social enterprises.

These are some of the common types of commercial banks. However, some banks may offer a combination of services and may not fit neatly into a single category.

Services Offered by Commercial Banks

Commercial banks in Nepal offer a wide range of services to their customers. Some of the services offered by commercial banks in Nepal include:

1. Deposit accounts:

   Commercial banks in Nepal offer various types of deposit accounts, such as savings accounts, current accounts, fixed deposit accounts, and recurring deposit accounts. Customers can choose the type of account that suits their needs and earn interest on their deposits.

2. Loans and credit:

   Commercial bank provides loans and credit to their customers for various purposes such as home loans, personal loans, business loans, and education loans. They also offer credit cards and overdraft facilities to their customers.

3. Money transfers:

   Commercial banks in Nepal offer money transfer services such as wire transfers, electronic fund transfers, and remittances. Customers can transfer money within Nepal or internationally.

4. Foreign exchange services:

   Commercial banks in Nepal provide foreign exchange services such as currency exchange, travel cards, and foreign currency accounts. Customers can buy or sell foreign currency at the prevailing exchange rate.

5. Online banking:

   Commercial banks in Nepal provide online banking services to their customers, which allow them to access their accounts, transfer money, pay bills, and check account balances from anywhere.

6. Investment services:

   Commercial banks in Nepal provide investment services such as mutual funds, stock trading, and investment advice. Customers can invest in various financial instruments through the bank.

7. Insurance services:

   Some commercial banks in Nepal also offer insurance services such as life insurance, health insurance, and travel insurance.

These are some of the common services offered by commercial banks in Nepal. However, the services offered may vary from bank to bank.

Importance of Commercial Banks

Commercial banks play a vital role in the economy of a country. Commercial banks are important for a variety of reasons, including:

1. Mobilization of savings:

   Commercial banks mobilize savings from individuals and businesses by offering various types of deposit accounts. These savings are then used to provide loans to individuals and businesses for various purposes.

2. Credit creation:

   Commercial banks create credit by lending out a portion of the deposits they receive. This credit creation helps stimulate economic growth by providing funds to individuals and businesses to invest in various projects and expand their operations.

3. Facilitate trade and commerce:

   Commercial banks provide various services, such as money transfers, foreign exchange, and trade finance, which facilitate trade and commerce within and outside the country. This, in turn, promotes economic growth and development.

4. Provision of loans:

   Commercial banks provide loans to individuals and businesses for various purposes, such as home loans, personal loans, business loans, and education loans. This enables individuals and businesses to meet their financial needs and pursue their goals.

5. Employment generation:

   The provision of credit by commercial banks helps to create employment opportunities in various sectors of the economy. Businesses can expand their operations, leading to increased employment opportunities for people.

6. Payment and settlement system:

   Commercial banks provide payment and settlement services to individuals and businesses, which facilitate the smooth functioning of the economy. This enables businesses to carry out transactions seamlessly, leading to increased efficiency and productivity.

7. Facilitate government operations:

   Commercial banks facilitate the operations of the government by providing banking services such as managing government funds, providing loans, and managing foreign exchange reserves.

In summary, commercial banks are important institutions that play a vital role in the economic development of a country. They help mobilize savings, create credit, facilitate trade and commerce, provide loans, generate employment, provide payment and settlement services, and facilitate government operations.

Regulations Governing Commercial Banks

Commercial banks are heavily regulated by various regulatory bodies to ensure their safety and soundness and to protect the interests of depositors and the stability of the financial system. Some of the regulations governing commercial banks include:

1. Licensing:

   Commercial banks must obtain a license from the regulatory authority before they can start their operations. The regulatory authority sets certain standards and criteria that banks must meet before they are granted a license.  

2. Capital requirements:

   Commercial banks are required to maintain a certain level of capital to ensure that they have enough funds to absorb potential losses. The regulatory authority sets minimum capital requirements that banks must meet.

3. Reserve requirements:

   Commercial banks are required to maintain a certain percentage of their deposits as reserves with the central bank. This helps to ensure that banks have enough funds to meet the withdrawal demands of their customers.

4. Disclosure requirements:

   Commercial banks are required to disclose their financial information to the regulatory authority and the public. This includes information about their assets, liabilities, capital, and operations.

5. Supervision:

   Commercial banks are subject to ongoing supervision by the regulatory authority. This includes regular examinations of the bank's financial condition, risk management practices, and compliance with regulations.

6. Consumer protection:

   Commercial banks are required to comply with consumer protection laws and regulations. These laws and regulations aim to protect the interests of depositors and borrowers by ensuring fair and transparent banking practices.

7. Anti-money laundering and counter-terrorism financing:

   Commercial banks are required to implement measures to prevent money laundering and the financing of terrorism. This includes implementing customer due diligence measures, reporting suspicious transactions, and complying with sanctions regimes.

In summary, commercial banks are subject to various regulations and supervisory measures to ensure their safety and soundness and to protect the interests of depositors and the stability of the financial system. These regulations cover areas such as licensing, capital requirements, reserve requirements, disclosure requirements, supervision, consumer protection, anti-money laundering, and counter-terrorism financing.

Current Trends and Challenges facing Commercial Banks

1. Increasing competition:

   With the entry of new players in the market, commercial banks in Nepal are facing increasing competition. Non-banking financial institutions, payment service providers, and fintech companies are offering innovative services, which is putting pressure on traditional banks to adapt and innovate.

2. Digital transformation:

   The digital transformation of the banking industry is rapidly changing the way commercial banks operate. The adoption of digital technologies such as mobile banking, online banking, and digital payments is creating new opportunities and challenges for commercial banks in Nepal.

3. Risk management:

   Commercial banks in Nepal are facing increasing risks, including credit risk, market risk, and operational risk. Banks must have robust risk management systems in place to identify, measure, and manage these risks.

4. Capital requirements:

   Commercial banks in Nepal are subject to capital requirements set by the regulatory authority. Meeting these requirements can be challenging, especially for smaller banks, and can limit their ability to grow and expand their operations.

5. Compliance requirements:

   Commercial banks in Nepal are subject to various compliance requirements, including anti-money laundering and counter-terrorism financing regulations. Compliance with these regulations can be time-consuming and costly.

6. Financial inclusion:

   Despite progress in recent years, a significant portion of the population in Nepal remains unbanked. Commercial banks face the challenge of expanding their reach and providing services to underserved communities.

7. Macroeconomic conditions:

   Commercial banks in Nepal are affected by the country's macroeconomic conditions, including inflation, exchange rates, and political stability. These factors can impact the profitability and stability of banks.

In summary, commercial banks in Nepal are facing a range of trends and challenges, including increasing competition, digital transformation, risk management, capital requirements, compliance requirements, financial inclusion, and macroeconomic conditions. Addressing these challenges will require banks to innovate, adapt, and implement effective risk management and compliance systems.

While the meaning of "bank" varies from country to country, in Nepal, "bank" can be defined as a financial institution that deals with money and credit and provides financial services to its customers by depositing and lending money and credit. The bank is important in any economy because it provides a secure and safe place to keep the money as well as credit to those in need. 

Classification of Bank:

Banks can be classified into different categories based on various factors such as ownership, functions, and geographic scope:

1. Based on ownership:

• Public sector banks:

Banks that are owned and run by the government are referred to as "public-sector banks." In Nepal, several public-sector banks are regulated by the central bank of the country. Nepal Bank Limited, Rastriya Banijya Bank Limited, Agriculture Development Bank Limited, Nepal Investment Bank Limited, etc. are some of the private sector banks of Nepal.

• Public sector banks:

These are the banks that are operated and owned by private individuals or companies. These banks are also regulated by the central bank. Nabil Bank Limited, Standard Chartered Bank Nepal Limited, Himalayan Bank Limited, and Everest Bank Limited are some of the private sector banks in Nepal.

• Cooperative banks:

These are banks that are owned and operated by their members, who are typically customers of the bank. These banks are regulated by the central bank of Nepal. Sunrise Bank Limited, Mahila Sahayatra Microfinance Bittiya Sanstha Limited, and Tinau Bikas Bank Limited are some cooperative banks in Nepal.

2. Based on geographic scope:

• National banks:

These are banks that operate within a single country and are owned by the government. In Nepal, the national bank is the Nepal Rastra Bank.

• International banks:

These are banks that operate across multiple countries and have a global presence. Standard Chartered Bank, Citibank, Himalayan Bank Limited, and ICICI Bank Limited are some of the international banks in Nepal.

3. Based on functions:

• Commercial banks:

Commercial banks are the "A" class financial institutions in Nepal, which accept deposits from the public, make funds from those deposits, and provide loans to those in need with the main objective of earning profit. These banks are regulated by the central bank of Nepal. Nepal Bank Ltd., Rastriya Banijya Bank, and Nepal Investment Bank Limited are some of the commercial banks in Nepal.

• Investment banks:

These are the banks that provide investment banking services such as underwriting, advisory, and fund management to their clients. NIBL Ace Capital Limited, Sanima Capital Limited, and Civil Capital Market Limited are some of the investment banks in Nepal.

• Central banks:

These are the banks that are responsible for managing a country's monetary policy and regulating the banking industry.

Brief information about Central Bank:

The Central Bank is the largest financial institution in the entire banking system of our country. It is the regulatory and supervisory authority for the banking and financial sector in Nepal. The Nepal Rastra Bank is the only central bank in our country. The Nepal Rastra Bank was established in 1956 (13 BS) under the Nepal Rastra Bank Act, 1955 (2012 BS).

As per the Nepal Rastra Bank Act, 2002, the objectives of NRB are:

• To develop and manage the necessary monetary and foreign exchange policies to maintain price stability and the balance of payments for economic stability and long-term economic growth. 
• To improve access to financial services and boost public trust in the banking and financial system by ensuring the sector's stability, 
• To develop a secure, healthy, and efficient system of payment.

Here are some of the functions that are carried out by the central bank:

1. Issue of banknotes and coins:

The central bank is the only financial institution that has monopoly power over note issues as it is authorized to issue currency and notes. The Nepal Rastra Bank began issuing notes in 1921 (2016 B.S.) and now also mints coins.

2. Formulate monetary policy and implement it:

With the objective of promoting price stability and sustainable economic growth, the central bank is responsible for formulating and implementing monetary policy in Nepal. It uses a range of tools, such as setting interest rates and reserve requirements, to influence the availability of credit and the money supply in the economy.

3. Formulate foreign exchange policy and maintain a foreign exchange reserve:

The central bank manages the country's foreign exchange reserves to manage international transactions, maintain market stability, and support the balance of payments. 

4. Act as a government bank and financial agent and advisor:

The central bank serves as the banker, agent, and advisor of the government. The government receives every necessary banking facility through the central bank. On behalf of the government, the central bank takes deposits of cash, checks, and drafts and also transfers funds between government accounts.

5. Act as a bank of banks:

The central bank provides banking services to financial institutions as well as controls and regulates a country's banking system. That is why it is referred to as the bank of all banks. Banking and financial institutions can be established only with the prior approval of the Nepal Rastra Bank.

6. Regulate, inspect, supervise, and monitor the banks and financial institutions of a country:

The NRB regulates, supervises, and monitors commercial banks, development banks, finance companies, and other financial institutions operating in Nepal. It sets efficient regulations and supervises compliance with these regulations to ensure the safety and soundness of the financial system.

7. Functions as a lender as a last resort:

If commercial banks, development banks, and other financial institutions are unable to meet their financial requirements from other sources, they may turn to the central bank for financial help. The central bank provides them with financial help; that's why they are known as lenders of last resort.

8. Control credit:

Since uncontrolled credit causes an economic crisis in an economy, controlling credit is the most important function of the central bank. Inflation is caused by the overexpansion of credit, whereas deflation is caused by an expansion of credit. Therefore, the central bank controls credit by using instruments like the bank rate, cash reserves, and open market operations.

9. Develop secure, healthy, and efficient modes of payment:

The central bank is committed to promoting the development of secure, healthy, and efficient modes of payment in Nepal, to improve the country's financial system and support economic growth.

10. Carry clearing house function:

The Clearinghouse is a system that facilitates the transfer of funds between banks, allowing them to settle their payment obligations with one another. The clearinghouse receives payment instructions from each participating bank and matches the payment orders to ensure that the appropriate funds are transferred between banks. The clearinghouse then settles the net payment obligations between banks, with the NRB acting as the settlement agent.

Factors Driving the Growth of Assets

• Increased Banking Habits and Expansion in Banking Outreach:

The growth of assets in the banking system of Nepal is partly due to the increasing banking habits of Nepalese people. In recent years, people have become more inclined towards saving and investing their money in banks. Additionally, the expansion of banking outreach has enabled banks to reach more people in remote areas of Nepal, thereby increasing the number of customers and deposits.

• Wider Adoption of Information Technology:

The wider adoption of information technology has played a critical role in the growth of assets in the banking system of Nepal. Banks have been able to introduce innovative and efficient banking services such as mobile and internet banking, which have made banking transactions more convenient and accessible for customers. This has led to an increase in the number of transactions, deposits, and credits in the banking system.

• Remittance Inflows:

Nepal is one of the top remittance-receiving countries in the world. According to the World Bank, in 2020, remittance inflows to Nepal accounted for 28.4 percent of its gross domestic product (GDP). The remittance inflows have contributed significantly to the growth of deposits in the banking system of Nepal.

• Increase in Paid-up Capital and Reserves:

The liabilities side of the balance sheet of BFIs has grown due to an increase in paid-up capital and reserves through the issuance of right shares, bonus shares, and an increase in profits. The government has also injected significant capital in state-owned banks, which has contributed to the growth of assets in the banking system.

Challenges of the Growth of Assets

• Concentration of Banking Assets:

As of mid-July 2019, the five large commercial banks, namely RBB, NICA, NIBL, NABIL, and EBL, collectively accounted for 24.73 percent of total banking system assets and 28.74 percent of total commercial banks' assets. This concentration of banking assets to a few banks in Nepal poses a risk to financial stability. The failure of any of these large banks is likely to have a significant impact on the banking system's stability.

• Limited Access to Finance:

Despite the significant growth in the banking system, many Nepalese people, especially those living in rural areas, still have limited access to finance. This limits their ability to save, invest, and access credit facilities, which could help improve their livelihoods.

The growth of assets in the banking system of Nepal has been driven by increased banking habits, expansion in banking outreach, wider adoption of information technology, remittance inflows, and an increase in paid-up capital and reserves. While this growth presents many opportunities, it also comes with challenges such as concentration of banking assets and limited access to finance for some Nepalese people. Therefore, there is a need for policies and measures that promote financial inclusion and reduce the concentration of banking assets to ensure the stability of the banking system and promote sustainable economic growth.

Banking and Non-Banking Sectors

The banking sector in Nepal is dominated by commercial banks, which hold 90.5% of the total investment in the Nepalese financial sector. The non-banking sector consists of development banks, micro-credit development banks, finance companies, co-operative financial institutions, and non-government organizations (NGOs) performing limited banking activities. Other financial institutions include insurance companies, employee's provision fund, citizen investment trust, postal saving offices, and Nepal Stock Exchange.

Growth of Financial Institutions

There has been a tremendous growth in the number of financial institutions in Nepal in the last two decades. At the beginning of the 1980s, there were only two commercial banks and two development banks performing banking activities in Nepal. But after the liberalization drive in 1980, there was a promising expansion of the financial sector in Nepal. By mid-January 2007, NRB licensed bank and non-bank financial institutions totaling 203. These financial institutions are under the regulation and supervision of the NRB. Besides these institutions, there are more than 3000 registered savings and credit cooperatives, and as many as 10,000 NGOs involved in this sector.

Micro-Finance Models

The microfinance practices of the organized sector in Nepal can be broadly grouped into 7 microfinance models. They are:

• Grameen Model:

The Grameen Model is based on the principles of the Grameen Bank in Bangladesh and is a microfinance model that provides credit and other financial services to the poor, especially women, in rural areas. It focuses on group-based lending and encourages entrepreneurship and income-generating activities among the poor. This model is based on the idea of "bankers without banks" and has been successful in providing financial services to the poor and increasing their economic independence.

• Small Farmers Co-operative Model (SFCLs):

The Small Farmers Co-operative Model (SFCLs) is a microfinance model that provides financial services to small farmers in rural areas. This model is based on the cooperative principles and encourages farmers to come together and form a co-operative for the purpose of accessing financial services. The co-operative provides its members with loans for agricultural and other income-generating activities and also helps in marketing their produce.

• FINGOs Model:

FINGOs Model is a microfinance model that is based on the principles of non-government organizations (NGOs). This model focuses on providing financial services to the poor in rural areas and is implemented by NGOs that have a deep understanding of the local community and their needs. The FINGOs model is based on the idea of "banking the unbanked" and provides financial services such as savings, loans, and insurance to the poor, who otherwise would not have access to these services.

• Priority Sector and Deprived Sector Credit Model:

The Priority Sector and Deprived Sector Credit Model is a microfinance model that provides credit to the priority and deprived sectors of the economy such as small farmers, micro and small enterprises, and low-income households. This model focuses on providing financial services to those who are in need but are unable to access them due to a lack of collateral or a formal credit history. This model is implemented by commercial banks and other financial institutions and is regulated by the Nepal Rastra Bank (NRB).

• Savings and Credit Co-operatives (SACCOS) Model:

The Savings and Credit Co-operatives (SACCOS) Model is a microfinance model that is based on the cooperative principles. This model provides financial services such as savings, loans, and insurance to its members who are from the same community. The SACCOS model is based on the idea of "banking the unbanked" and encourages the poor to come together and form a co-operative for the purpose of accessing financial services.

• Project-based Micro-financing Model:

The Project-based Micro-financing Model is a microfinance model that provides credit to individuals or groups for specific income-generating projects. This model focuses on providing financial services to those who have a specific project in mind but are unable to access credit from traditional financial institutions. This model is usually implemented by development banks and other financial institutions and is regulated by the Nepal Rastra Bank (NRB).

• Wholesale Micro-financing Model:

The Wholesale Micro-financing Model is a microfinance model that provides credit to microfinance institutions (MFIs) for the purpose of on-lending to the poor. This model focuses on increasing the reach and access of financial services to the poor by providing credit to MFIs, which then provide financial services to the poor. This model is usually implemented by commercial banks and other financial institutions and is regulated by the Nepal Rastra Bank (NRB).

In conclusion, the Nepalese financial sector has come a long way since its liberalization drive in 1980. With the growth in the number of financial institutions, the sector has become more diverse and inclusive. The commercial banks continue to dominate the financial sector, while the micro-finance models provide financial services to the unbanked and underbanked population in the country. The Nepalese financial sector has a long way to go, but with the right policies and regulations in place, it can continue to grow and contribute to the country's economic development.

In Nepal, the neo-banking trend began with the introduction of e-banking services by traditional banks in the early 2000s. However, it wasn’t until the arrival of mobile banking in the late 2000s that neo-banking truly took off. Today, many Nepalis use mobile banking apps to manage their finances, and the trend is continuing to grow.

One of the main advantages of neo-banking in Nepal is the convenience it offers customers. With the ability to access banking services from anywhere at any time, customers no longer need to visit a physical bank branch to conduct transactions. This is particularly beneficial for those living in remote areas, where access to traditional banking services may be limited.

Another advantage of neo-banking in Nepal is the increased security it offers. Digital banking services use advanced security measures such as two-factor authentication and encryption to protect customers’ personal and financial information from hackers and fraudsters. This provides customers with peace of mind and reassurance that their money is safe.

However, there are also some challenges that come with the growth of neo-banking in Nepal. One of the main challenges is the lack of financial literacy among some customers. Many Nepalis are not familiar with the various digital banking services and how to use them, which can make it difficult for them to take full advantage of the convenience and security offered by neo-banking.

To address this challenge, financial institutions in Nepal have begun to invest in financial literacy programs to educate customers about the benefits of digital banking and how to use it safely and effectively. These programs include training sessions and workshops, as well as the development of educational resources such as brochures and videos.

Another challenge facing neo-banking in Nepal is the limited availability of internet and mobile services in some areas of the country. While mobile coverage has improved significantly in recent years, there are still some areas where internet connectivity is poor, making it difficult for customers to access digital banking services.

To overcome this challenge, financial institutions are working with mobile network operators and internet service providers to improve connectivity in these areas. They are also investing in alternative technologies such as SMS banking, which allows customers to conduct transactions using text messages, even in areas where internet connectivity is poor.

Despite these challenges, the future of neo-banking in Nepal looks bright. As more and more Nepalis become familiar with digital banking and the benefits it offers, the demand for these services is likely to continue to grow. Additionally, with the government of Nepal actively promoting the digitalization of the economy, the growth of neo-banking in Nepal is expected to accelerate.

In conclusion, neo-banking is a rapidly growing trend in Nepal, offering customers increased convenience and security. However, challenges such as a lack of financial literacy and limited internet connectivity still exist. With government support and financial institutions' efforts to educate customers and improve connectivity, these challenges can be overcome, making neo-banking a viable option for all Nepalese people.

The beginning of payment systems began with the establishment of Nepal Rastra Bank as the central bank in 1956. The bank had direct control over all financial institutions in the country legally. However, until 1968, there were no specialized payment services, and banks functioned as an intermediary place with limited payment service to payees and payers of the same branch of the financial institution. Moreover, after the early 1970s, people in the country were encouraged to use checks in the banking system.

In general, in 1990, another touching milestone to bring up to the current online payment system was the introduction of digital payments. Commercial banks and some other financial institutions used the clearing center facilities. And until then, the branches of financial institutions were not divided with the core of the banking system. Thus, Nabil bank first introduced card banking in the economy by issuing a credit card in 1990. Other forms of digital banking followed, such as internet banking in 2002 by Kumari bank and SMS banking by Laxmi bank. in 2004. Himalayan Bank introduces the country's first ATM in 1995. Irrespective of the implications, Smart Choice Technology (SCT) was established in 2001 with the development of the SCT network across the country. A huge revelation in the payment system was full bank control and financial intuition along with the success of e-sewa in 2006.

After e-sewa payment system which is literally the evolved online payment system also the operation as a digital wallet in 2009 the customers could pay, send, and receive money via mobile phones and internet without having bank account.For the first time in the history of Nepalese payments system, the payments were executed without any involvement of financial institution. However, Nepal Clearing House Ltd.(NCHL) was established as a public limited company in late 2008. With the success of multiple payments cleaning and settlement strategies in Nepal, NCHL brought the big objectives, surprisingly in addition to electronic cheque cleaning services, and Interbank payments system form in 2016.

Likewise, use of digital mode payments, non-bank regulated mobile wallet along with the increasing global financial integration was on rapid expansion. Central Bank was forced to develop safe and efficient payment systems, and work on the modernization of payment system. It started a dedicated department for the regulations to carry out payment related activities and helped to develop online payments infrastructure in the country. Viewing account balance, recent transactions, bank statements, funds transfers between the customer’s linked accounts, payment to the third parties, including bill payments and third-party fund transfers are evolved similarly in Nepal as the development of international online banking and payment system.

In order to preserve the country's economic development, the Industrial Development Bank which was transformed into the Nepal Industrial Development Corporation (NIDC) in 1959 A.D. was established in 1957 A.D. The main purpose of the establishment of the bank was to promote industrialization in the country. After the establishment of the first commercial bank, the same bank called Rastriya Banijya Bank which is the largest commercial bank in Nepal today was established in 1966. Agriculture is a big business as more than 70% of the people depend on it. In order to maintain economic equality and prosper the agricultural sector, the First Agricultural Development Bank was established in 1968. After the establishment of joint venture banks in 1984, the rise of the national government bank ended.

Current Status

With the development of new technologies in the country, the banking sector and its services have been completely transformed. Today the banking sector is more organized, modern and manageable than twenty years ago. Various banking services such as Banking software, ATM, Internet Banking, Mobile Banking, Debit Card, Credit Card, Prepaid Card etc. services are available at Nepalese bank these days. There are various types of banks operating in the current Nepal banking system. They are central banks, development, commercial, financial, cooperatives and Micro Credit (Grameen) banks. Currently there are 1 central, 30 commercial, 78 Development, 37 microfinance banks and 49 financial companies in Nepal. Nepal Bank Limited is also Nepal's first commercial bank with the largest network in the banking sector. Comparing Nepal's modern banking system with the conventional banking system, the modern banking system has begun to establish more branches across the country.

With established branches, life of Nepalese in the sense of financial services has become easier than ever. Currently, most commercial banks entering the ‘A’ category have started mobile banking services. Although commercial banks have started mobile banking services to improve Nepal's banking system, the popularity of mobile banking is slowly growing in the country.

CHALLENGES OF MOBILE BANKING IN NEPAL

Nepal is a country where technology is growing at a slower pace. Compared to developed countries, Nepal is still a long way off in terms of technology. Despite having technologically acceptable technologies in urban areas, in contrast, in rural areas people are reduced to using new technological resources. As mentioned earlier that more than 70% of Nepalese people have banks, so there is a huge challenge to the acceptance of mobile banks in Nepal. People living in the capital are more educated than people living in rural areas. Here are some of the factors that may be a challenge for mobile banking in Nepal.

1. Infrastructure Development

- The development of any country can be easily seen through the development of infrastructure. In Nepal, infrastructure development is grim. The situation is difficult even in rural areas where people are deprived of many resources. Because of the traditional system in the minds of Nepalese people, they keep themselves away from new technological services. In order to have smooth portable banking services, communication channels should be fast enough to respond on time. Nepal's level of literacy is below the threshold that creates a direct impact on the use of new technological services, here in our case of mobile banking.

2. Attitude towards Banks

- Due to a lack of awareness among Nepalese people, mobile banking is not growing at the expected rate. Although various commercial banks in Nepal have introduced mobile banking services to their customers, people are still relying on the old banking tradition. Most people, especially in rural areas, sell cash instead of going to the banks. This results in lower utilization of mobile banking services. Most educated people are in urban areas and mobile banking seems to be very popular with young people. Although mobile phone users are growing rapidly in Nepal but they have no idea about the use of a mobile banking which is one of the easiest ways of banking services.

3. Trust In Mobile Banking

- For any type of technical services, security is one of the biggest issue. Here in the case of mobile banking, security should be a high priority. Nepal's technology base is not as strong as expected. Compared to developed countries, the security system for technical services in Nepal needs to be significantly improved. Every year different software developer company in Nepal tries to apply different security measures to mobile banking services but still it lacks high level security.

4. Language Features

- Nepal is a country where there are 4 castes and 36 subcastes. There are many Nepali people who can speak and write Nepali but no other languages. There are also many public schools / colleges where most of the courses are offered in the local language, i.e. Nepali which leads to poor understanding of other languages ​​i.e. English language. As Nepal's mobile banking app operates in English, there is a need to develop a mobile banking in a local language. The development of mobile banking in the Nepali language will not only make life easier for Nepali but at the same time it helps to increase the popularity of mobile banks in Nepal.

5. Handset operation

- Even mobile phone users are growing every year in Nepal but in the case of mobile banking it depends on what type of mobile phone you have. In the case of an SMS alert banking, it may support normal mobile phones but in the case of a mobile banking client application then the platform is different. Apart from the platform, there can be issue with operating system, system requirements in mobile phones. The client-based mobile app is particularly well suited to the current version of smartphones which is the latest mobile technology. But when it comes to Nepal where poverty is estimated at 40% , it is difficult for Nepali families do mobile banking through smartphones.

Types of Mobile Banking Architecture

There are 3 types of facilities for mobile banking services. They are described below-

1. SMS OR MMS-BASED MOBILE BANKING:

SMS (Short Message Service) was the first mobile banking service available when mobile banking became available. The connection is based on a blank text. There are two ways to bank SMS. They are a pull and push mode. Pull mode is one way of sending messages where the financial institution sends messages to the user about his or her account status. This method can be used to promote other mobile banking services where the push method is a two-way messaging system where the user sends a specific request about his transaction to the bank with the help of the pre-defined code and the bank replies it in the form of text messages.

Basically, there are 2 types of messaging systems. SMS and MMS (Multimedia Messaging System). SMS banking handles only small messages which are limited while on the other hand MMS can handle large messages but has the same functionality as SMS. To use this type of MMS mobile banking, the user must register his mobile device with the bank and the bank sends text messages with the required password acting as a mobile bank activation code. The great advantage of using SMS-based mobile banking is that it is an inexpensive and standard technology service, and is available on almost all mobile phones regardless of manufacturer, model number or network company. It has a habit of providing both communication between the bank and the user. As for security features which is one of the major factors to keep in mind, it does not transmit or store users' personal information on a mobile device.

2. WEBSITE-BASED MOBILE BANKING

- Another type of mobile banking based on the architecture is browser-based mobile banking. This type of banking service can be accessed from an Internet browser on a mobile device. This service is available on the banking website on mobile devices provided by the relevant financial institutions. The user can connect to a mobile banking website either via WAP (Wireless Access Protocol) or through some other Internet services provided by ISPs. Wireless Access Protocol, founded in 1990, enabled mobile devices to access the Internet. It is an industry standard for gaining access to information through a wireless mobile network. This type of banking service is easy to use and easily accessible even when network quality is acceptable. The great advantage after using this type of service is that most of the data management is done on a remote server which helps to quickly process user interaction with banking websites. This type of banking service has certain limitations as well. In order to provide banking services to mobile devices, a designed website should also be responsive for mobile screens. A user who uses Internet services with a data plan on mobile devices, this may incur additional costs as the user must gain access to the banking website. This type of banking service these days, is mainly designed for smartphones and other Personal Digital Assistant (PDA).

3. CLIENT-BASED MOBILE BANKING

- With the development of smartphones, technology in terms of mobile phones has reached a new era. With smartphones, one can feel the presence of personal computers in hand. Customer-based mobile banking is ideal for smartphones and other PDAs that tendency to run an application provided by concerned banks. This type of banking service requires download and install of respective banking application. This is also one of the easiest means of banking services.

With the help of a bank application that works on smartphones, the user can have one touch access to various bank account services. This type of application-based banking services have the same features as web-based banking services. The main drawback of using this banking service is that users have to learn about this new app and at the same time it is not supported on all types of mobile devices due to technical limitations on mobile devices. As mentioned above on web-based mobile banking, this type of banking services can also be costly for those users who have a data plan for internet connection.

Conclusion

The number of mobile banking users is growing every year at various rates especially in urban areas where technology is advancing rapidly. The technology has replaced Nepal's traditional banking system into a modern banking system with a variety of services such as ATMs, online banking, mobile banking. As mobile banking is not fully accessible in rural Nepal but various projects and efforts are being made by many organizations to improve information on mobile banking .However, the current situation shows that more than 70% of Nepali households are unbanked but it can be expected that with the initiation of mobile banking in different parts of Nepal will help those unbanked households to get an idea about normal banking systems. It can also be expected that with mobile banks, there will be a major shift in payment systems in Nepal which will make the lives of Nepali people easier and more economically viable.