. Historical Background of Bank

History shows the requirements of economic development of any country heavily realize upon the banking system of the country (Scott, 1992). During its industrial development period, U.K used bank credit to fulfil its working capital need. In 19th century, during the industrialization process of France and Germany, banks played an important role in industrial finance and growth of the nation. In general meaning, bank is an institution that deals with money. A bank performs several financial, monetary and economic activities, which are vital for economy development of a country. It is a monetary institutional vehicle for domestic resource mobilization of the country that accepts deposits from various sources and invests such accumulated resources in the fields of agriculture, trade, commerce etc. Generally, the term “Bank” refers commercial Banks. Commercial banks are the foundation of the national economy. They transfer monetary sources from savers to users. They involve in various functions like money creation, creation, credit facilitating, foreign trade facilitating safe keeping of the various etc. Commercial banks have its own role and contribution in the economic development. It is a source of economic development and it maintains economic confidence of various segments and extends credits to the people. Thus activities of commercial banks are to eliminate poverty, reduce unemployment problems and increase economic growth.

Modern commercial banks can be identify by different names, such as business banks, retail banks, clearing banks, joint venture banks and merchant banks etc. Regardless of the name we give to banks, they all perform the same basic function i.e. they provide a link between lenders those who have surplus money and do not wish to spend immediately with borrowers, there who do not have surplus money but wish to borrow for investment in productive purpose. Basically, by charging a rate of interest to borrowers slightly higher than they pay to lenders, the bank makes their profit. This is known as financial intermediaries. Commercial banks provide the following major products and services:

• Acceptance of deposits

• Granting of advances

• Remittance collection and distribution

• Cash management

• Issuance of letters of credit and guarantee

• Merchant banking business

• Credit cards

• Technology based services-internet banking services

• Loan distribution

• Automatic teller machines (ATM)

• Handling government business

• Safe keeping services/lockers

The first public bank “The Bank of Venice” was established in Italy in 1157 A.D. Different countries in the world followed the footsteps of this bank to incorporate banking institutions in their countries. The evolution of “The Bank of England” in the Kingdom of England in 1694 A.D. brought remarkable changes in the process of establishing banking institution in the world. The establishment of this bank was a big milestone in the history of banking development. It is believed that the idea of commercial banks rapidly spread all over the world only after the inception of this bank.

In Nepal, development of banking is relatively recent. The history of banking system in Nepal in the form of money lending can traced back in the reigning period of Gunakamdev; The King of Kathmandu” (NBL, 2037).

Tankadhari ‘a special class of people’ was established to deal with the lending activities of money towards the end of fourteen century at the ruling period of King

Jayasthiti Malla (NBL, 2011).

During the Prime Ministerial period of Rannodip Singh’ one financial institution we established to give loan facilities to the government staff and loan facilities to the public in general in the term of 5% interest but ‘Tejarath’ did not accept money from public (NBL, 2040).

On the 30th Kartik, 1994, Nepal Bank Limited was established for the first time to provide modern and organized banking facilities. Up to B.S. 2012, only NBL provided services to the public as an organized bank. Later, NRB act 2012 was made to establish NRB as a central bank to manage, control and develop monetary system in Nepal. NRB was formally established on 14th Baisakh, 2013 and its capital at the starting time was 1 Crore. Similarly, Rastriya Banijya Bank was set up in B.S. 2022 to fulfil the growing needs of the country. The birth of this bank brought a new landmark in the history of banking facility in Nepal. Like other developed countries, Nepal also took the policy to open economy and liberal, to develop good competition in the banking field. Hence, the joint venture banking policy is taken. Today 26 commercial banks are operating to provide modern banking services and facilities to boost the economic condition of country.

The financial sector reform was initiated in mid-1980 under the liberal economic policy of HMG/N under this policy; HMG/N first opened the banking sectors to foreign investors. In July 1985, commercial banks were allowed, for the first time to accept current and fixed deposits on foreign currency (U.S dollar and sterling pound). On May 26, 1986, NRB deregulated the commercial banks to fix interest rate at any level above its minimum prescribed levels.