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Banking and its History

1. Origin of the word "Bank"

There are different opinions regarding to origin of the word "Bank". Some authors claimed that the word "Bank" is derived from the word "BANCUS","BANQUE" which means bench. Earlier the Jews in Lombardy used to transact their business in the market place. When a banker failed to meet its financial obligations, the bench was broken by the anger people as a result the word bankruptcy i.e. inability to pay obligations was originated.

There are others who are opining that the word "Bank" was derived from the German word "Banck" meaning a joint stock fund. The German word "Banck" was derived from Italic word "Banco". Beside it the word "Bank" is derived from French word "Banke" and used as a Bank in English language.

2. Meaning and Definition

In short a bank may be defined as a banking company which deals in money i.e. a bank should be a company incorporated under the special law of the country. An individual or group of individuals or a private / partnership firm or any other institutions may not operate banking business. Similarly a bank should deal only in money, it means bank accepts deposit and provides loan. As banks deal in money play important role in the economic development of the country and entire commercial activities are linked up with the banking channel. In the very beginning the banking activities were limited only in accepting deposits and making loan and advances        whereas modern banking is extended with financial and other activities in addition to accepting deposits and making loans.

History of Banking

The modern banking system started with the establishment of Bank of Venice in 1157 AD in Italy. This was followed with the opening of Bank of Barcelona in 1401 AD, Bank of Genoa in 1407 AD, Bank of Amsterdam in 1609 AD, Bank of Hamburg in 1609 AD, Bank of England in 1694 AD which played important role in the overall advancement of banking system in the world.
The brief history of Nepalese banking system can be studied as following.

1.               Preliminary Age: (Since ancient time to 1994 BS) –

The Major development in this period has been evaluated as following:

1.      During Malla regime, there used to be a community called Tankdhari, who used to lend money to the needy people to the limited extend.

2.     King Prithvi Narayan Shah established “Koishi Tosha Khana” which was responsible for managing financial transactions of the regime.

3.       Jung Bahadur Rana established an institution called “Mulukikhana” for taking care of financial responsibility of the country.

4.   Chandra Shamsher established ‘Satahikhana’ under “Mulukikhana” for facilitating exchange between Nepalese rupee and Indian rupee.

5.      Ranoddip Singh established an office called “Tejarath Adda” which used to provide loans to people. Establishment of Tejarath Adda in 1880 can be conceived as the beginning of the process of credit mobilization in Nepal. However, this institution was not allowed to take public deposit and provide credit to public. The fund was provided by the government for credit to their staff and landlords only. Therefore, it was not a bank even the urban people in need of the financial support had to rely on Shahus and landlords because of the limited activities of Tejarath Adda.

2.         Middle Age (Since 1994 BS to 2024 BS) - The Major development in this period     has been evaluated as following:

1.               Establishment of Nepal Bank Limited –

With the establishment of Nepal Bank Limited, the financial services were made available to the general public. In this regard, the establishment of Nepal Bank Limited signified the commencement of banking system in Nepal. Due to the absence of the central bank, Nepal Bank had to play the role of central bank and operate the function of central bank.

2.               Establishment of Nepal Rastra bank. –

Nepal Rastra Bank Act was formulated in 2012 BS and the Nepal Rastra Bank was established in 1956 A.D. as the central bank of Nepal. Nepal Rastra Bank makes various guidelines for the banking sector of the country and supervises the functions of the bank and financial institutions as a regulatory body.

3.               Establishment of Rastriya Banijya Bank –

Rastriya Banijya Bank was established in 1965 A.D. as the second commercial bank of Nepal. The financial shapes for these Nepal Bank Limited and Rastriya Banijya Bank have a tremendous impact on the economy.

4.               Establishment of Agriculture Development Bank –

As the agriculture is the basic occupation of major Nepalese, the development of this sector plays in the prime role in the economy. So, separate Agriculture Development Bank was established in 1968 A.D as a first financial institution in agricultural financing.

3.         Modern Age (Since 2024 BS to till today)

For more than two decades, no more banks had been established in the country. After declaring free economy and privatization policy, the government of Nepal encouraged the foreign banks for joint venture in Nepal. After the amendment of Commercial Banking Act, 1974 allowing private sector including foreign investment to open commercial Bank, various Private banks and J/V commercial banks many banks were established in the country. At present there are Commercial Banks, Development Banks, Financial Companies, Micro Finance Companies and Saving and Credit co-operatives (licensed by Nepal Rastra Bank) are in competition in the Nepalese market.

- Utsav Dhakal

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