Nepal Rastra Bank (NRB)

Overview

The Nepal Rastra Bank (NRB) is the central bank of Nepal and primary regulatory authority for the country's monetary system and financial sector. Established in 1956 as the successor to the State Bank of Nepal, NRB operates under the Nepal Rastra Bank Act, 2002 (2058 BS in Nepali calendar) and serves as the apex institution for monetary policy formulation, banking supervision, payment system regulation, foreign exchange management, and financial system stability.

Current Leadership

• Governor: Appointed by Government of Nepal Council of Ministers
• Deputy Governors: Two positions for monetary policy and supervision (appointed for 5-year terms)
• Board of Directors: Seven members including Governor (Chair), Deputy Governors, Ministry of Finance Secretary, and three non-executive Directors
• Term of Office: 5-year tenure for Governor and Deputy Governors

Key Statistics

• Established: 1956 (as Nepal Rastra Bank; founded from State Bank of Nepal)
• Headquarters: Baluwatar, Kathmandu, Nepal
• Workforce: 3,000+ employees
• Banking System Oversight: 20+ commercial banks, 70+ finance companies, 50+ microfinance institutions, numerous cooperative financial institutions
• Currency: Nepalese Rupee (NPR)

Basic Identity

Classification

Inclusion Justification

What This Entity Oversees

Supervisory Authority and Structure

NRB exercises comprehensive supervision through:

• Banking Board Secretariat: Licensing, authorization, and ongoing compliance supervision
• Bank Supervision Department: On-site examinations, off-site monitoring, enforcement
• Monetary Policy and Financial Stability Department: Macroprudential oversight and stress-testing
• Research Department: Financial system analysis and policy recommendations

Licensing and Authorization

NRB grants licenses for:

• Commercial Banks: Full banking services including deposits, lending, payment services
• Development Banks: Specialized lending (infrastructure, development projects)
• Finance Companies: Consumer and corporate lending without deposit-taking
• Microfinance Institutions: Small borrower lending and financial services
• Cooperative Financial Institutions: Member-based financial services
• Payment System Operators (PSOs): Under proposed regulatory framework
• Digital Payment Service Providers (PSPs): Mobile wallets, digital payments

Prudential Regulatory Standards

Capital Adequacy Requirements:

• Minimum capital requirements scaled by bank size and complexity
• Capital Adequacy Ratio (CAR): Minimum 10.5-12% for different bank categories
• Common Equity Tier 1 (CET1): Minimum 5.5-6%
• Tier 2 capital and subordinated debt provisions

Asset Quality Standards:

• Loan classification framework: Pass, Substandard, Doubtful, Loss
• Provisioning requirements: 0-100% based on classification
• Expected Credit Loss (ECL) framework implementation
• Large exposure limits and sectoral concentration restrictions

Liquidity Requirements:

• Statutory Liquidity Ratio (SLR): Minimum 10-12% of deposit liabilities
• Cash Reserve Ratio (CRR): Minimum 3-5% of deposit liabilities
• Intraday liquidity monitoring
• Contingency funding planning

Interest Rate Regulation:

• Maximum interest rate caps on consumer loans (14-16% depending on product)
• Transparency in pricing and fee disclosures
• Anti-usury provisions to protect borrowers

Regulatory Examination Program

• Periodic Inspections: Biennial on-site examinations for risk assessment
• Off-Site Supervision: Continuous monitoring of regulatory returns and prudential indicators
• Specialized Inspections: Targeted examinations for specific risk areas or compliance issues
• AML/CFT Compliance Testing: Regular audits of antimoney laundering and sanctions compliance

Supervisory Enforcement

Enforcement Actions Available:

• Warnings and corrective action orders
• Monetary penalties ranging from NPR millions to billions
• Mandatory enhanced capital and provisioning
• Management and board sanctions (removal of officials)
• Licensing conditions and restrictions
• License suspension or revocation (ultimate sanction)

Payment Systems and Infrastructure

Payment System Regulatory Authority

NRB, under Nepal Rastra Bank Act 2002, holds authority to:

• Establish and operate payment systems
• Regulate payment system operators and providers
• Ensure safety, efficiency, and integrity of payment infrastructure
• Manage systemic risk in payment and settlement systems
• Set technical standards and security requirements

Nepal Payment System Board (NPSB)

• Interbank clearing house operator under NRB oversight
• Operates real-time gross settlement (RTGS) for large-value payments
• Manages clearing house operations for retail transactions
• Provides settlement and reconciliation services

Real-Time Payment Systems

RTGS (Real-Time Gross Settlement)

Characteristics:

• Handles large-value interbank transfers in real-time
• Continuous operation during business hours
• High-priority settlement for critical payments
• Participation: All commercial and development banks

Electronic Funds Transfer Systems

Cheque Clearing:

• Automated cheque processing and clearing
• Daily clearing cycles with batch settlement
• Image-based cheque processing (MICR/OCR technology)
• Integration with RTGS for settlement

NEPALPAY Initiative

Purpose and Status:

• National payment switching and clearing infrastructure
• Real-time payment capability development
• Integration of heterogeneous payment channels (banks, digital wallets, fintech)
• Phase-based rollout beginning mid-2020s

Planned Features:

• Unified clearing gateway for multiple payment types
• Real-time settlement for retail payments
• Integration with government and utility payment systems
• Open architecture for payment service providers

connectIPS (Instant Payment System)

Establishment and Growth:

• Instant interbank payment platform enabling immediate fund transfers
• Accessible via mobile applications and web portals
• User growth: 0.16 million (Mid-August 2020) to 1.28 million (Mid-July 2024)
• 600%+ growth trajectory over 4-year period

Features and Functionality:

• 24/7/365 availability for retail payments
• Mobile-first user experience
• Integration with bank accounts and digital wallets
• Low transaction costs and instant settlement

Digital Wallet and Mobile Money Ecosystem

Licensed Digital Wallet/Payment Service Providers:

• eSewa: Market-leading digital wallet; 15+ million users; P2P transfers, merchant payments, bill payments, international remittance integration
• Khalti: Second-largest wallet provider; 10+ million users; merchant specialization, government services integration
• IME Pay: Growing provider; 5+ million users; remittance and cross-border payment focus
• PrabhuPay: Emerging provider; utility and government payment focus
• Others: Multiple smaller operators under NRB licensing framework

Regulatory Framework for Digital Wallets:

• KYC and Customer Due Diligence (CDD) requirements
• Transaction limits by account tier (daily/monthly caps)
• Fraud prevention and transaction monitoring systems
• Data security and customer information protection
• Cybersecurity standards compliance
• Regular compliance examinations

Cross-Border and Remittance Payments

Remittance Integration with Digital Wallets:

• International remittance services (Western Union, MoneyGram, Wise, Remitly, WorldRemit) offering direct payout to eSewa, Khalti, IME Pay
• Instant settlement to mobile wallets from overseas
• Convenience for overseas workers and diaspora
• Integration reduces friction in remittance corridors

Remittance Regulation:

• NRB licensing and approval required for inbound remittance channels
• Compliance with AML/CFT standards for remittance flows
• Reporting requirements for large value remittances
• Foreign exchange impact management (remittances = significant FX inflow)

Remittances as Economic Pillar

Remittance Flows to Nepal:

• Annual inflows: USD 8-12 billion (2024-2025)
• 20%+ of GDP (among highest ratios globally)
• Primary source of foreign exchange
• Critical support for household consumption and investment

Source Countries: India, UAE, Saudi Arabia, Qatar, Malaysia, United States, others

Remittance Channel Regulation

Licensed Remittance Service Providers:

• Banks and finance companies with remittance licenses
• International money transfer operators (Western Union, MoneyGram, Wise, etc.)
• Digital wallet providers integrating remittance functionality
• All require NRB authorization and compliance with standards

Regulatory Requirements:

• AML/CFT compliance for remittance channels
• KYC verification of remittance senders and beneficiaries
• Transaction reporting for large-value remittances
• Exchange rate transparency and fair pricing
• Customer dispute resolution mechanisms

Financial Inclusion Initiatives

Digital Payment Promotion:

• Accelerating digital wallet adoption to reduce cash dependency
• Integration of digital payments into government subsidy distribution
• Remittance channeling through digital wallets and banks
• Unbanked population access to basic financial services

Microfinance Expansion:

• Licensed microfinance institutions (MFIs) serving low-income populations
• Group lending and collateral-free products
• Emphasis on women's financial empowerment
• Integration with formal banking system through wholesale financing

Legal Framework

Primary Legislation:

• Nepal Money Laundering Prevention Act, 2008: Criminalization of money laundering; reporting requirements
• Anti-Terrorism Prevention Act, 2007 (as amended): Terrorist financing prevention and asset freezing
• Foreign Exchange Regulation Act, 1962: Controls on cross-border financial transactions

Regulatory Implementation:

• NRB issues AML/CFT directives to banks and financial institutions
• Bank supervision program includes AML/CFT compliance examination
• Coordination with Financial Investigation Unit (FIU) for intelligence analysis

AML/CFT Requirements and Guidelines

Customer Due Diligence (CDD):

• Customer identification and verification at account opening
• Beneficial ownership identification for corporate customers
• Enhanced CDD for high-risk customers and Politically Exposed Persons (PEPs)
• Ongoing customer relationship monitoring

Suspicious Activity Monitoring and Reporting:

• Transaction monitoring systems for pattern detection
• Suspicious transaction reporting (STR) to FIU
• Currency transaction reporting for large cash transactions
• Timely reporting and documentation requirements

Sanctions Compliance:

• UNSC sanctions list screening at customer onboarding
• Ongoing sanctions monitoring for account transactions
• Asset blocking procedures for sanctioned individuals/entities
• Reporting of blocked transactions

Record-Keeping and Documentation:

• 5-year retention of customer identification and transaction records
• Transaction documentation and audit trails
• Cooperation with law enforcement on record production

AML/CFT Supervision

Examination Program:

• On-site inspection of AML/CFT compliance during bank examinations
• Assessment of customer due diligence procedures
• Evaluation of transaction monitoring system effectiveness
• Testing of sanctions compliance and blocking procedures

Enforcement and Penalties:

• Administrative penalties for non-compliance
• License conditions and restrictions
• Enhanced supervision and increased examination frequency
• License suspension or revocation for serious violations

Financial Intelligence Unit (FIU) Coordination

• NRB coordinates with Nepal's FIU (part of national AML/CFT system)
• Banks report STRs to FIU through standardized channels
• Intelligence sharing between NRB and law enforcement
• International cooperation through Egmont Group channels

Current Regulatory Priorities and Challenges (2024-2026)

Digital Payment Integration and Fintech Regulation

• Formalizing digital wallet and payment service provider regulation through NRB Act amendments
• Developing cybersecurity and operational resilience standards for fintech
• Regulatory sandbox framework for financial innovation
• Balance between innovation support and financial stability

Payment System Modernization

• NEPALPAY implementation and connectivity with existing systems
• connectIPS expansion and user adoption acceleration
• Real-time payment capability enhancement across channels
• Cross-border payment system integration

Remittance Digitalization

• Reducing informal remittance channels (hawala) through formal alternatives
• Lower-cost remittance corridor development
• Integration of remittances with government social safety nets
• Fintech-based remittance service regulation

Financial Inclusion Expansion

• Bank account penetration in rural and underserved areas
• Integration of microfinance with formal banking system
• Digital payment adoption by low-income populations
• Women's financial inclusion and empowerment

Macroprudential Framework Strengthening

• Implementation of countercyclical capital buffers
• Stress-testing for economic downturns and external shocks
• Liquidity coverage and net stable funding monitoring
• Interconnectedness risk assessment and mitigation

Climate Risk Integration

• Climate risk framework development for banking sector
• Green finance and sustainable lending promotion
• Environmental and social risk management standards
• Alignment with international climate finance initiatives

Regulatory Powers

This entity exercises the following regulatory powers as the central monetary authority:

Regulatory Role and Function

Legal Foundation

Primary Legislation

Nepal Rastra Bank Act, 2002 (2058 BS)

Enacted following comprehensive financial sector reform initiated through the Financial Sector Strategy Paper announced by Government of Nepal on November 22, 2000, the NRB Act 2002 established:

• NRB as the sole central bank and monetary authority of Nepal
• Comprehensive regulatory framework for banking and financial institutions
• Macroprudential stability responsibilities
• Payment system authority and oversight
• Foreign exchange management powers

Key Provisions:

• Establishes NRB's legal personality and governance structure
• Defines monetary policy objectives and tools
• Grants banking supervision and licensing authority
• Empowers regulation of payment systems and clearing houses
• Establishes antimoney laundering provisions
• Sets forth enforcement and penalty framework

Supporting Legislation

• Banking Regulation Act, 2006: Prudential standards for banks and financial institutions
• Nepal Money Laundering Prevention Act, 2008: AML/CFT framework
• Anti-Terrorism Prevention Act, 2007: Terrorist financing prevention provisions
• Foreign Exchange Regulation Act, 1962 (as amended): Foreign currency transaction controls
• Cooperative Act, 2017: Regulation of cooperative financial institutions

Recent Regulatory Amendments (2024-2026)

• Proposed NRB Act 2002 Amendment: Expanding definition of "financial institution" to include Payment System Operators (PSOs) and Payment Service Providers (PSPs)
• Digital Payment Integration: Framework amendments to formalize digital wallet and mobile money regulation
• Enhanced Supervisory Powers: Amendments strengthening NRB enforcement authority over fintech and digital payment providers

Licensing and Authorization Relevance

The Nepal Rastra Bank (NRB) is a key licensing authority in Nepal's financial system:

The licensing process typically involves assessment of capital adequacy, fitness and propriety of management, business plan viability, AML/CFT compliance frameworks, and IT systems readiness.

Payments and Money Movement Relevance

Policy Objectives

Under Nepal Rastra Bank Act 2002, monetary policy is designed to achieve:

1. Price Stability: Maintaining inflation within sustainable levels (target: 4-6% medium-term)
2. Financial System Stability: Ensuring soundness and efficiency of banking sector
3. Economic Growth: Supporting sustainable development through credit availability
4. External Stability: Maintaining adequate foreign exchange reserves and currency strength

Monetary Policy Committee Structure

Composition:

• Governor (Chair)
• Deputy Governor responsible for monetary policy
• Multiple external experts and representatives
• Quarterly policy review and decision-making

Decision-Making Process:

• Quarterly monetary policy review meetings
• Policy rate adjustments and announcement
• Forward guidance communication
• Coordination with Ministry of Finance on macroeconomic policy

Policy Instruments

• Policy Rate (Repo Rate): Primary instrument for influencing money market rates and liquidity
• Open Market Operations (OMO): Purchase and sale of government securities for liquidity management
• Reserve Requirements: Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR)
• Standing Facilities: Lending and deposit facilities at ceiling and floor rates

Current Monetary Policy Context (2024-2026)

Recent Policy Priorities:

• Inflation management in post-pandemic recovery environment
• Credit growth normalization after crisis-period contraction
• Foreign exchange reserve adequacy amid remittance volatility
• Support for digital payment adoption and financial inclusion
• Coordination with fiscal policy for macroeconomic stability

Policy Rate Trends:

• Gradual normalization from pandemic lows
• Data-dependent adjustment based on inflation and growth dynamics
• Emphasis on communication and forward guidance

Authority and Responsibilities

Under Nepal Rastra Bank Act 2002, NRB holds exclusive authority for:

• Managing Nepal's official foreign exchange reserves (currently USD 5+ billion)
• Implementing exchange rate policy and intervention
• Regulating authorized dealers and money changers
• Controlling cross-border currency transactions

Exchange Rate Regime

Currency Peg System:

• Nepalese Rupee (NPR) maintained at fixed parity to Indian Rupee (INR)
• De facto pegging to INR at approximately 1.6 NPR = 1 INR
• Allows limited fluctuation against basket of major currencies
• Coordination with Reserve Bank of India (RBI) on bilateral exchange policy

Implications of NPR-INR Peg:

• Transmits Indian monetary policy to Nepal
• Simplifies cross-border trade with major trading partner (India)
• Limits autonomous exchange rate flexibility
• Foreign reserve management focused on non-INR currencies (USD, EUR, GBP, SDR, gold)

Foreign Exchange Regulation Framework

Authorized Dealer System:

• Licensed banks authorized to conduct forex transactions
• Regulation of dealer activities and pricing
• Quarterly reporting of forex positions and transactions
• Authorized money changers for retail currency exchange

Capital Controls and FX Restrictions:

• Controls on outbound capital flows (restrictions on foreign investment by residents)
• Repatriation requirements for export proceeds
• Limits on external commercial borrowing and foreign loans
• Restrictions on current account transactions for non-residents

Reserve Management Strategy

Foreign Exchange Reserve Composition:

• USD (primary reserve currency)
• EUR (secondary reserve currency)
• GBP and JPY (diversification)
• IMF SDR (international reserve asset)
• Gold (physical reserve holdings)

Reserve Adequacy and Targets:

• Maintaining import cover of 6+ months of goods imports
• Build-up of reserves as proportion of external debt
• Management of remittance-driven reserve volatility
• Debt service coverage through adequate reserves

Payment Systems Governed or Overseen

The NRB operates and/or oversees the national payment and settlement infrastructure of Nepal. Specific systems include:

[Further detail on specific system names requires verification from official sources]

Relationship to Other Regulators

Multilateral Organizations

• International Monetary Fund (IMF): Regular Article IV consultations and technical assistance
• World Bank: Financial sector development programs and policy support
• Asian Development Bank (ADB): Regional development initiatives
• Basel Committee on Banking Supervision: Standards and best practices implementation

Regional Cooperation

• South Asian Association for Regional Cooperation (SAARC): Regional central bank coordination
• SAARC Development Fund: Regional development finance
• Central Banks of South Asia: Bilateral technical cooperation agreements

Bilateral Relationships

• Reserve Bank of India (RBI): Currency swap arrangements, monetary policy coordination, cross-border payment settlement
• Central Banks of Remittance Source Countries: Cooperation on remittance channel regulation and AML/CFT
• Correspondent Banking: Relationships with major international banks for international transactions

Geography and Jurisdiction Notes

Important Departments and Divisions

Key Public Resources

Nepal Rastra Bank Headquarters

Address: Baluwatar, Kathmandu, Nepal

Website: www.nrb.org.np

Key Departments:

• Banking Board Secretariat
• Bank Supervision Department
• Payment Systems Department
• Monetary Policy and Financial Stability Department
• Research Department

Key Regulatory Contact Points

Payment Systems Supervision: Payment Oversight Division

AML/CFT Compliance: Financial Intelligence Coordination

Banking Licensing: Banking Board Secretariat

8. NEPAL PAYMENT SYSTEMS & INFRASTRUCTURE

8.1 Core Payment & Clearing Systems

8.2 NCHL (Nepal Clearing House Limited) — Market Overview

Ownership: Member banks consortium (Bank of Kathmandu, Kumari Bank, Standard Chartered, etc.)

Operating Systems:

• Electronic Cheque Clearing (ECC) — Check clearing
• Interbank Payment System (IPS) — Batch clearing
• Retail Payment Switch (RPS) — Network switching
• connectRTGS — High-value settlement (Rs 10 lakh+ typical)
• CORPORATEPAY — B2B payment channel
• NEPALPAY Card — National card scheme (under implementation)
• NPS (National Card Switch) — Card network operator (under implementation)

8.3 connectIPS — Fast Retail Payment System

Overview:

• Launched: 2017
• Operating since: 2018 (full rollout)
• Transaction Speed: Real-time (within seconds)
• Participating Banks: 20+ commercial banks, 70+ finance companies, 50+ microfinance institutions
• Channels: Web portals, mobile apps, payment gateways, open APIs

Key Features:

• 24/7 × 365 operations
• Sub-second processing for retail payments
• Multiple channel support (online, mobile, branch)
• Open API for third-party integration
• Standardized security standards

Transaction Types:

• Person-to-Person (P2P) transfers
• Bill payments (utilities, telecom, insurance)
• Merchant payments
• School/education fees
• Government revenue payments

Regulatory Status: NRB-supervised; participants must comply with NRB guidelines

8.4 Digital Wallets & Mobile Payment Services

Market Leaders (2025-2026):

8.5 NEPALPAY QR — Merchant & Retail QR Standards

Features:

• Standardized QR code format across all apps
• Integration: All major wallets and apps support NEPALPAY QR
• Merchant adoption: Growing in retail, hospitality, transport
• Cross-app functionality: Customers can pay NEPALPAY QR from any app
• Real-time settlement: Via connectIPS backend

Participating Apps:

• eSewa — All QR transactions
• Khalti — All QR transactions
• ConnectIPS App — Bank QR transfers
• IME Pay (now Khalti)
• FonePay
• Bank-specific mobile apps

8.6 NPI (National Payments Interface) — Open API Platform

Status: Live and expanding (2023-2026)

Overview:

• Open API framework for payment app developers
• Enables third-party apps to initiate payments
• Direct integration with connectIPS backend
• Standardized security & compliance framework

Participants:

• Licensed PSPs
• Banks
• Fintechs & app developers
• Merchant platforms

8.7 Card Payment Systems & RuPay

Status: National card schemes under development/implementation

NEPALPAY Card Scheme:

• Under NCHL operation
• Target: Domestic debit/credit cards
• Status: Pilot phase (2024-2026)
• RuPay: No current formal partnership (under exploration)

8.8 Remittance & Cross-Border Payments

Major Remittance Providers:

• eSewa — Partnerships with international remittance networks
• IME (now Khalti) — Remittance specialist; strong international presence
• Banks — Traditional remittance channels
• Licensed MSBs — Money service businesses regulated by NRB

Regulatory Framework:

• NRB Foreign Exchange Regulations guide remittance operations
• Licensed MSBs: Growing segment for remittance services
• Transaction limits: NRB-mandated limits on digital transactions (varying by provider/account type)

8.9 Security & Regulatory Compliance

NRB Oversight:

• Payment System Oversight Report (Annual)
• Cybersecurity Guidelines (2020, updated 2024)
• KYC/AML Requirements: Mandatory for all digital wallets
• Transaction Monitoring: NRB-mandated fraud prevention

Fraud Control:

• connectIPS: Built-in fraud detection
• Wallet Apps: Multi-factor authentication, transaction limits
• Banks: Real-time transaction monitoring

Notes on Naming and Language