Licensing, Ownership, Consolidation and Resolution of Nepali Banks
Foreign investors face a 15 per cent ownership ceiling, a wholesale-only branch licence, and a banking system that keeps shrinking by merger.
The ownership ceiling
Most enquiries about buying into a Nepali bank end at the same provision. BAFIA section 41 restricts any one person, firm, company or institution to 15% of the paid-up capital of a single bank or financial institution, and to less than 1% of the paid-up capital of any other. A separate provision requires a portion of issued capital to be offered to the public, which is why almost every class A, B and C institution is listed on Nepal Stock Exchange.
Read together, those two rules mean that a Nepali bank has no controlling shareholder as a matter of course, and that a foreign investor cannot acquire one in the ordinary way. The joint-venture banks established from the 1980s onwards, the structures behind several of today’s commercial banks, were licensed under earlier law and specific arrangements. They are not a template a new entrant can replicate by buying shares in the market.
That leaves three routes for foreign participation, and they are quite different animals.
Foreign bank branches
BAFIA contains a special provision for branches of foreign banks, and NRB set the terms in the Foreign Bank Branch Licensing Policy 2022, which replaced a 2010 policy. The conditions are deliberately narrow.
The parent must be licensed and supervised in its home jurisdiction, must produce home-regulator approval, and must hold an investment-grade rating from an international agency. The branch must be assigned a minimum of USD 20 million in capital. Business is confined to wholesale: deposits of at least NPR 100 million from a single corporate entity, loans of NPR 200 million or more for infrastructure and industrial projects, and trade instruments — letters of credit and guarantees — in convertible foreign currency. Retail deposit-taking is prohibited, as are loans for land purchase, margin lending against shares, and financing of precious metals.
A branch on those terms is a corporate and project-finance vehicle. It cannot compete for the deposit base, which is the point. The policy admits foreign capital and foreign credit capacity without exposing the retail system to a foreign balance sheet. Whether any bank has actually taken up the licence could not be confirmed.
Representative offices are the weaker cousin. The 2022 policy confines them to liaison and research. They may not take deposits, lend, deal in foreign exchange or transact at all. ICICI Bank, Mashreq Bank and Doha Bank held representative offices when the policy issued.
Minority stakes
An investor content with an influence position rather than control can hold up to 15%. That is enough to matter commercially and, in a listed bank with a dispersed register, enough to be the largest single holder. It will not guarantee board representation. Board seats in a Nepali bank are constrained by their own rules rather than by shareholding alone: the family-member restriction, cross-directorship bans, and NRB’s fit-and-proper screening, all covered in Bank Governance and Fit-and-Proper Requirements.
Anyone taking this route should treat the acquisition as a two-regulator problem. NRB consent governs the banking side. The Securities Board of Nepal and Nepal Stock Exchange rules govern acquisition of a listed company’s shares. And inbound equity has to be routed and recorded correctly for later repatriation, which is the subject of Cross-Border Money: FDI Inflows, Repatriation, Foreign Loans and Trade Finance. Founder or promoter shares carry their own transfer restrictions under Directive 10 of the Unified Directives.
Mergers and consolidation
The structural story of Nepali banking since roughly 2011 is contraction by merger. NRB has used capital requirements, licensing policy and direct encouragement to compress a system that once ran to several hundred licensees. At mid-April 2026 there were 20 commercial banks, 17 development banks, 17 finance companies and 51 microfinance institutions.
The instrument is Directive 18 of the Unified Directives, on merger, acquisition, amalgamation and upgrading. NRB’s leverage is considerable. It approves the transaction, sets the conditions, and can require swap ratios to be justified. In the December 2025 amendment round it attached a merger consequence to an unrelated rule: institutions breaching the cap on cross-investment in other financial institutions face dividend restrictions or mandatory merger if not compliant by Ashadh 2087 (mid-2030).
The capital requirement did the heavy lifting earlier. The 2015 increase, recorded by the World Bank as NPR 8 billion for commercial banks, NPR 0.5 to 2.5 billion for development banks depending on geographic scope, and NPR 0.4 to 0.8 billion for finance companies, forced a wave of amalgamations. The current figures could not be confirmed at NRB primary level and are not stated here. A party sizing a transaction should obtain the operative circular rather than rely on the 2015 numbers.
When a bank fails
Nepal’s failure toolkit sits mostly in the NRB Act rather than in BAFIA.
Deterioration. Off-site monitoring and on-site inspection feed the Prompt Corrective Action framework under the Prompt Corrective Actions Bylaws 2012. PCA has been used: in 2025 and 2026 NRB placed finance companies under it and issued warnings to development banks. The typical package restricts dividends, new branches, deposit growth or lending, and requires a remediation plan.
Problem status. The NRB Act allows a commercial bank or financial institution to be deemed problematic, which opens stronger intervention including management takeover. Karnali Development Bank has been the subject of a public troubled-institution declaration.
Resolution. Chapter 9A of the NRB Act contains the resolution regime. Actions taken before resolution commences are rendered inactive, the standard device for preventing pre-resolution asset stripping. The regime was revised in 2025 and 2026 in consultation with IMF staff to close what the Fund described as key gaps, and the further amendments now before Parliament in the Third Amendment Bill would strengthen it again, including recovery-planning requirements for banks.
Depositors. The Deposit and Credit Guarantee Fund guarantees deposits of natural persons up to NPR 500,000 per depositor per member institution. Membership is compulsory for class A, B and C institutions and, in practice, some class D. Members pay 0.16% a year on average deposits, collected quarterly at 0.04%. Compensation runs through the liquidator, so the timeline for a depositor is the timeline of the liquidation rather than of the failure.
Two gaps deserve naming. Corporate deposits are not guaranteed. And savings and credit cooperatives, which take deposits outside the BAFIA perimeter, have no resolution regime at all. The IMF has flagged developing one as critical while the new National Cooperatives Regulatory Authority builds its licensing framework.
What to watch
The loan portfolio review NRB commissioned under its IMF programme required the ten largest commercial banks to file Capital Restoration Plans and NPL Resolution Strategies by mid-August 2026, with NRB review targeted for mid-September. Separately, the authorities are preparing a legal framework for an asset management company to take on distressed loans, contingent on improvements to debt recovery and insolvency law.
Whether those plans are accepted, and what NRB requires of the banks that fall short, will say more about how the resolution framework behaves than the statutory text does.
Sources
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Bank and Financial Institution Act, 2073 (2017) — unofficial English translation
Nepal Rastra Bank · Act 2017; translation posted 2019 · Tier 1 — Primary legal instrument
Supports: Section 37 classification, section 40 on branches of foreign banks, section 41 on capital and the 15% shareholding ceiling, the public-offer requirement, and Chapter 5 on licensing.
Accessed 26 August 2026
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Foreign Bank Branch Licensing Policy, 2022 (Notice No. 14)
Nepal Rastra Bank · March 2022 · Tier 1 — Primary legal instrument
Supports: USD 20 million minimum assigned capital, investment-grade rating requirement, wholesale-only permitted business, the NPR 100 million deposit and NPR 200 million loan floors, the prohibitions on land, margin and precious-metal lending, and the replacement of the 2010 policy.
Accessed 26 August 2026
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Nepal bars representative offices of foreign banks from engaging in banking activities in Nepal
The Kathmandu Post · 16 March 2022 · Tier 6 — Professional or news source
Supports: That ICICI Bank, Mashreq Bank and Doha Bank held representative offices, and that the 2022 policy confines those offices to liaison and research.
Accessed 26 August 2026
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Nepal Rastra Bank Act, 2058 (2002)
Nepal Rastra Bank, Legal Division · 2002, as amended · Tier 1 — Primary legal instrument
Supports: Chapter 9 supervisory powers including section 79, section 86B on institutions deemed problematic, and Chapter 9A on resolution.
Accessed 26 August 2026
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Deposit Guarantee (निक्षेप सुरक्षण) — scheme description
Deposit and Credit Guarantee Fund · Accessed 26 August 2026 · Tier 2 — Official publication
Supports: Coverage of natural-person deposits up to NPR 500,000, the 0.16% annual premium collected quarterly at 0.04%, membership by class, and payment through the liquidator.
Accessed 26 August 2026
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International Monetary Fund · 8 June 2026 · Tier 3 — Multilateral institution
Supports: Revisions to the bank resolution framework agreed with IMF staff, the requirement for banks to file Capital Restoration Plans and NPL Resolution Strategies by mid-August 2026, the preparation of a legal framework for an asset management company, and the absence of a resolution regime for savings and credit cooperatives.
Accessed 26 August 2026
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Nepal — Financial Sector Stability Development Policy Credit programme document
World Bank · 2021 · Tier 3 — Multilateral institution
Supports: The record of the paid-up capital requirements introduced in 2015 — NPR 8 billion for commercial banks, NPR 0.5–2.5 billion for development banks by geographic scope, and NPR 0.4–0.8 billion for finance companies — and the 11% regulatory capital adequacy norm.
Accessed 26 August 2026
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2082 Chait (Mid-April 2026) Banking and Financial Statistics (Monthly)
Nepal Rastra Bank · Data to mid-April 2026 · Tier 2 — Official publication
Supports: The count of 20 commercial banks, 17 development banks, 17 finance companies and 51 microfinance institutions at mid-April 2026.
Accessed 26 August 2026
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