Banking Policies Overview

This note explains that in line with financial sector development and liberal economic policy in Nepal, directed credit programs face severe criticism. It states that the Government, in its attempt to create a professional environment for commercial banks, is adopting indirect instruments instead of direct ones for effective monetary management.

The paper presents the Government's withdrawal schedule for 2002/03 that seeks to eliminate priority sector lending by 2007/08.

Further, the note presents banking policies governing commercial banks in Nepal. It lists:

• New policy guidelines on the establishment of commercial banks released on May 16, 2003;
• New policy guidelines on the establishment of development banks released on May 21, 2002;
• Regulatory directives issued to Development Banks effective from January 23, 2003 that allow:
  • Deposits collection through mobilization of savings;
  • A total deposit collection up to 20 percent of allowed total deposit collection limit of the bank.
• Regulatory provisions for microfinance development banks effective from financial year 2002/03;
• New policy guidelines on the establishment of finance companies released on May 21, 2002
• Regulatory provisions for co-operative institutions operating limited banking transactions.