Liberalization in opening of banking and financial institution led to mushrooming of banking & financial institutions in Nepal. Nepal had only two commercial bank till 1984 A.D. and the banking facilities were mainly traditional type.
With the introduction of economic liberalization policy in 1984, banking sector got opportunity to expand, grow, add new facilities and introduce modern technology in banking service.
Liberalization in banking initiated the opening of joint venture banks. Some of these banks opened with 50% joint venture and some other established with less equity stake in paid up capital. At present some of the joint venture banks have upgraded their stake from 50%.
Along with commercial bank, the government allowed to open development banks, finance companies with the objective to increase people's access to financial institution. There are 32 commercial banks, 88 development banks, 69 finance companies, 24 micro-development banks as on Mid July 2012. The total numbers of branches of these institutions stands 1423 of commercial banks, 687 of development bank, 246 finance companies, more than 90 micro development bank) as on mid July 2012.
Permission for opening of Banks and financial institutions however have been executed with little research on requirement , possible offer available from these banks and financial institutions at people's level at urban and rural areas , viability level of the these institutions and capacity of regulating agency to monitor these institutions.
The result came out in few years. Majorities of bank and financial institution are city centered and are having cut throat competition. The activities like opening of branches at rural setting, developing entrepreneurs and thereby increase employment opportunities, productivity level and earning of the country did not occur as expected. Activities on lending result shows increased lending in consumption sector which influenced luxury imports and environment pollutions.
NRB realized the situation and international donors helping Nepal to improve its economy suggested for the merging of bank and financial institutions to make few but strong institutions.
Bank and financial institution established and licensed without long term planning has started to fold back after the world bank and IMF guided the Nepal Rastra Bank (NRB) to reduce the numbers of financial institution. They suggested making few but stronger institutions than many weak institutions. NRB developed policies and guided banks and financial institutions to strengthen their position. The policy adopted by the NRB has started to pay back with the increase in the numbers of bank and financial institution for merger. The developments so far are the followings:
Effect of Merger Policy in Financial Institution
1. Global Bank, IME Finance & Lord Buddha Finance company merged together and is in operation as Global IME bank
2. Machapuchchre Bank and Standard Finance merged to establish a better equity based Machapuchchre Bank.
3. Vibor Bikash Bank & Bhajuratna Saving & Finance Company merged and is in operation as Vibor Bank.
4. Uddham Bikash Bank and Pashupati Development Bank merged and formed Axis Development Bank.
5. Kasthamandap Development Bank and Sikhar Finance merged and operating as Kasthamandap Development Bank
6. Swastik Finance and Infrastructure Development Bank in merged and operating as Infrastructure Development Bank .
7. NMB Bank & Clean Energy Bank signed MOU and have approved the proposal from their respective AGM
8. Himchuli Bikash bank and Birgunj Finance merged and became H & B Development bank
9. Alpic Everest Finance, Butwal Finance and CMB Finance are merged to form Synergy Finance.
10. Business Development bank and Universal Finance merged and branded as Universal Business Development Bank.
11. Imperial Finance & Premier Finance are in process of merger
12. Annapurna Bikas Bank & Suryadarshan Finance merged to become Supreme Development Bank
13. Nepal Sri Lanka Merchant Banking & Finance merged with NB Bank
14. Narayani National Finance emerged from Narayani Finance and National Finance and aiming to make it a strong equity based development bank.
15. NDEP and Hama Finance have initiated merging process.
16. Resunga Bikash Bank and Shine Development Bank merged and new bank is named Shine Resunga Development Bank.
17. Bageshwori Development Bank of Nepalgunj and Shangrila Development Bank of Pokhara initiated the merger process and requested NEPSE to halt trading of their stock transaction
18. NIC Bank and Bank of Asia are in merger process and has called AGM to finalize the process and finalize the new name.
19. As per the market sources, ILFC and Grand bank is in line for merger process.
20. Infrastructure Development Bank, Manakamana Development Bank, Valley Finance and Yeti Finance are in process of merger to strengthen their base.
21. Gorkha Finance and Prudential Finance have decided merge and are initiated its processing
All together, 46 bank and financial institutions are in the process of changing operating status and establishing 22 bank & financial institutions. In the crowd, there are 7 commercial banks, 16 development bank and 23 finance companies. One can consider these developments as positive impact of the NRB policy on strengthening the Financial Institutions.