Nepal Rastra Bank and the Banking Legal Framework

Who regulates banking

Nepal has a single banking regulator. Nepal Rastra Bank (NRB) licenses, regulates, supervises and, where necessary, resolves every deposit-taking institution in the country. There is no separate prudential authority, no conduct regulator for banking, and no deposit-insurance body with independent supervisory powers.

That concentration makes the legal framework easier to describe than in most jurisdictions, and it makes one point unusually important. The statutes are short and mostly enabling. Almost every rule that binds a bank day to day — how much capital, how a loan is classified, how much may be lent to one borrower, who may sit on the board — sits in NRB’s Unified Directives, issued under delegated power. A reader who works only from the Acts will find the framework and none of the content. The NRB Unified Directives: A Working Map maps the Directives themselves. What follows is what sits above them.

The Nepal Rastra Bank Act 2058 (2002) creates the central bank and defines what it is for. Its objectives include price stability, external stability, a secure and efficient payment system, and public confidence in the banking system. Its regulatory, inspection and supervision powers over licensed institutions are grouped in one chapter, and section 79 is the specific grant under which the Unified Directives are issued. A later chapter deals with resolution. The Act has been amended repeatedly since 2002, but the version NRB publishes as consolidated reaches only the First Amendment of 2063 (2006), so a reader relying on it should assume later amendments are missing.

The Bank and Financial Institution Act 2073 (2017), universally called BAFIA, is the licensing statute. It covers the whole life of a bank: how one is incorporated, how it deals in its own securities, who may sit on its board and run it, how it is licensed, how much capital and liquid assets it must hold, and what business it may actually do. BAFIA replaced the 2063 (2006) Act of the same name. NRB’s English translation is unofficial and handles the Bikram Sambat and Gregorian pairing inconsistently, which is a real trap when citing it. The Nepali gazette text governs.

The four licence classes

Section 37 of BAFIA directs NRB to classify licensees by minimum paid-up capital and permitted transactions, into classes A, B, C and D. Infrastructure development banks sit alongside as a separate licence type with their own directives.

Class	Institution type	Permitted business	Count at mid-April 2026
क (A)	Commercial bank	Full-service banking, foreign exchange, trade finance	20
ख (B)	Development bank	Narrower banking business; licensed nationally or for a limited number of districts	17
ग (C)	Finance company	Deposit-taking and lending, historically weighted to hire purchase and leasing	17
घ (D)	Microfinance financial institution	Microcredit and small deposits, wholesale or retail	51
—	Infrastructure development bank	Infrastructure project finance	1

Together those 106 institutions operated 6,419 branches at mid-April 2026, held NPR 7,918.3 billion of deposits and NPR 5,906.4 billion of loans.

The class matters more than an outsider expects. It determines which transactions the institution may carry out at all, and which capital framework applies: class A and national-level class B are on the Capital Adequacy Framework 2015, while class C and sub-national class B remain on the earlier 2007/2008 framework, covered in Capital Adequacy and Prudential Requirements. It also sets the statutory liquidity ratio that binds, the directed-lending percentages that apply, and the department inside NRB that supervises. A counterparty checking a Nepali institution’s authority to do something should establish its class before reading any rule about it.

Class B carries a second distinction that is easy to miss. A development bank may be licensed to operate nationally or only in a defined number of districts, and the two have materially different capital and prudential treatment. “Class B” alone does not tell you which.

How NRB supervises

Supervision is split by class across departments. The Bank Supervision Department covers commercial banks and the infrastructure development bank; separate departments handle development banks, finance companies and microfinance institutions. The Banks and Financial Institutions Regulation Department writes the rules and the supervision departments enforce them. That is why a circular amending the Unified Directives comes from one department and an enforcement action from another.

NRB adopted a risk-based approach in 2014, and runs three things in parallel. There is full-scope on-site inspection at least annually, adjusted for risk profile, with targeted and special inspections in between. There is continuous off-site monitoring of the regulatory ratios: cash reserve ratio, statutory liquidity ratio, credit-to-deposit ratio, capital adequacy, interest spread. And there is a Supervisory Review and Evaluation Process built on each bank’s own Internal Capital Adequacy Assessment Process report, which can generate an institution-specific capital add-on. Where an institution deteriorates, NRB has a Prompt Corrective Action framework under bylaws dating from 2012, and beyond that the problem-institution and resolution powers in the NRB Act discussed in Licensing, Ownership, Consolidation and Resolution of Nepali Banks.

Bodies outside NRB

Four bodies matter to anyone dealing with a Nepali bank but are not NRB.

The Deposit and Credit Guarantee Fund guarantees deposits of natural persons up to NPR 500,000 per depositor per member institution, funded by a premium on member deposits. Membership is compulsory for class A, B and C institutions.

The Securities Board of Nepal regulates the listed banks as issuers. BAFIA requires a portion of issued capital to be offered to the public, so almost every class A, B and C institution is listed on Nepal Stock Exchange and bank governance answers to securities disclosure obligations as well as to NRB’s directives.

The Credit Information Bureau operates the credit information and blacklisting infrastructure that Directive 12 requires banks to use.

The National Cooperatives Regulatory Authority, newly established, is beginning to license and supervise savings and credit cooperatives, which take deposits outside the BAFIA perimeter entirely. The IMF expects on the order of ten thousand cooperatives to seek licences over the medium term. Until that regime matures, a material part of Nepali deposit-taking sits outside bank regulation.

Pending legislation

The central bank law itself is being rewritten. Amendments to the NRB Act addressing IMF safeguards-assessment recommendations and the bank resolution framework were a prior action for the seventh review under Nepal’s Extended Credit Facility. The Nepal Rastra Bank (Third Amendment) Bill 2083 passed the House of Representatives on 11 June 2026. It was still moving through the National Assembly stage in August 2026, and authentication was unconfirmed as at 26 August 2026. It is not in force and should not be described as law.

Its reported content includes extending the statutory definition of currency to cover central-bank-issued digital currency, changes to the appointment and removal of the Governor and directors, and strengthening of the resolution provisions. The IMF, having pressed for the amendments, has also recorded that they fall short of best practice in at least one respect: the Secretary of the Ministry of Finance keeps a voting seat on the NRB Board. The central bank’s formal autonomy is real but partial, and the bill now in Parliament narrows the gap without closing it.

Sources

1. Nepal Rastra Bank Act, 2058 (2002), consolidated with the First Amendment 2063

   Nepal Rastra Bank, Legal Division · 2002; consolidated text with 2006 amendment · Tier 1 — Primary legal instrument

   Supports: The establishment, objectives, functions and board of Nepal Rastra Bank, and the location of its regulatory, inspection and supervision powers in Chapter 9.

   Accessed 26 August 2026

2. Bank and Financial Institution Act, 2073 (2017) — unofficial English translation

   Nepal Rastra Bank · Act 2017; translation posted 2019 · Tier 1 — Primary legal instrument

   Supports: Chapter structure; section 37 on classification; section 40 on branches of foreign banks; section 41 on capital and shareholding; sections 49–50 on permitted transactions and restrictions on credit to connected persons; sections 14, 18 and 29 on directors and the chief executive.

   Accessed 26 August 2026

3. परिपत्र नं. १० (क, ख, ग) २०८२/८३ — एकीकृत निर्देशन, २०८२ जारी गरिएको सम्बन्धमा

   Nepal Rastra Bank, Banks and Financial Institutions Regulation Department · 16 January 2026 · Tier 1 — Primary legal instrument

   Supports: That the Unified Directives 2082 for class A, B and C institutions were issued by Circular No. 10 on 16 January 2026, alongside parallel circulars for class D and infrastructure development banks on the same day.

   Accessed 26 August 2026

4. 2082 Chait (Mid-April 2026) Banking and Financial Statistics (Monthly)

   Nepal Rastra Bank · Data to mid-April 2026; published May 2026 · Tier 2 — Official publication

   Supports: Counts of licensed institutions by class, branch numbers, system deposits and credit, and the non-performing loan ratio at mid-April 2026.

   Accessed 26 August 2026

5. Bank Supervision Report 2022/23

   Nepal Rastra Bank, Bank Supervision Department · April 2024 · Tier 2 — Official publication

   Supports: The division of supervisory responsibility inside NRB, the risk-based supervision approach adopted in 2014, the on-site and off-site model, SREP and ICAAP, and the existence of the Prompt Corrective Actions Bylaws 2012.

   Accessed 26 August 2026

6. Nepal — 2026 Article IV Consultation and Seventh Review under the Extended Credit Facility Arrangement, Country Report No. 26/127

   International Monetary Fund · 8 June 2026 · Tier 3 — Multilateral institution

   Supports: That amendments to the NRB Act addressing safeguards assessment recommendations and the bank resolution framework were a prior action for the seventh ECF review, and the IMF's assessment that they fall short of best practice on board composition.

   Accessed 26 August 2026

7. Nepal Rastra Bank (Third Amendment) Bill, 2083 unanimously passed

   Radio Nepal (Public Service Broadcasting) · 11 June 2026 · Tier 6 — Professional or news source

   Supports: Passage of the Nepal Rastra Bank (Third Amendment) Bill 2083 by the House of Representatives on 11 June 2026.

   Accessed 26 August 2026