individual research project

1. CHAPTER I
INTRODUCTION
"Banking is necessary, banks are not."
- Bill Gates
1.1 Introduction of the study
Commercial banks have been achieving several recent developments worthy of noting and in fact
worthy of studying. From the mushroom growth of these institutions beginning in the year 2006,
to the competition it faced, and finally the recent merger trends are all worthy of studying. This
paper as a whole brings together facts and data, and interprets them to give a wholesome picture
of commercial banks and their marketing policy in Nepal.
The correct chronological order of Banking System in Nepal is quite difficult to trace
considering the lack of proper historical records and data about it. However, Nepal bank Ltd. is
the first modern bank of Nepal Nepal bank, which marks the beginning of the banking era in
Nepal was established in 1937 A.D. Nepal Bank was established as a semi government bank
with the authorized capital of Rs.10 million and the paid - up capital of Rs. 892 thousand. Until
mid-1940s, only metallic coins were used as medium of exchange. So the Nepal Government
(His Majesty Government on that time) felt the need of separate institution or body to issue
national currencies and promote financial organization in the country.
Nepal Bank Ltd. remained the only financial institution of the country until the foundation of
Nepal Rastra Bank is 1956 A.D. Due to the absence of the central bank, Nepal Bank has to play
the role of central bank and operate the function of central bank. Hence, the Nepal Rastra Bank

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Act 1955 was formulated, which was approved by Nepal Government accordingly, 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.
A sound banking system is important for smooth development of banking system. It can play a
key role in the economy. It gathers savings from all over the country and provides liquidity for
industry and trade. In 1957 A.D. Industrial Development Bank was established to promote the
industrialization in Nepal, which was later converted into Nepal Industrial Development
Corporation (NIDC) in 1959 A.D.
Rastriya Banijya Bank was established in 1965 A.D. as the second commercial bank of Nepal.
The financial shapes for these two commercial banks have a tremendous impact on the economy.
That is the reason why these banks still exist in spite of their bad position.
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 Agricultural Development Bank was established
in 1968 A.D. This is the first institution in agricultural financing. For more than two decades, no
more banks have 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.
Today, the banking sector is more liberalized and modernized and systematic managed. There
are various types of bank working in modern banking system in Nepal. It includes central,
development, commercial financial, co-operative and Micro Credit (Grameen) banks.
Technology is changing day by day. And changed technology affects the traditional method of

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the service of bank, Banking software, ATM, E-banking, Mobile Banking. Debit Card, Credit
Card, Prepaid Card etc. services are available in banking system in Nepal. It helps both customer
and banks to operate and conduct activities more efficiently and effectively. For the development
of banking system in Nepal NRB refresh and change in financial sector policies, regulations and
institutional developments in 1980 A.D. Government emphasized the role of the private sector
for the investment in the financial sector. These policies opened the doors for foreigners to enter
into banking sector in Nepal under joint venture.
Some foreign ventures are also established in Nepal such as Nepal Bangladesh Bank, Standard
Chartered Bank, State Bank of India, Everest Bank, Himalayan Bank, Bank of Kathmandu etc.
The NRB will classify the institutions into "A" "B" "C" "D" groups on the basis of the minimum
paid-up capital and provide the suitable license to the bank or financial institution Group 'A' is
for commercial bank, 'B' for the development bank, 'C' for the financial institution and 'D' for the
Micro Finance Development Banks.
As of January 2020 there are 27 commercial banks, 24 development banks, 22 financial
companies and 90 micro credit development banks are established so far in Nepal. The bank with
the largest network in Nepal is The Nepal Bank Ltd. These commercial banks and financial
institutions have played significant roles in creating banking habit among the people, widening
area and business communities and the government in various ways.
1.2 Statement of the problem
Financial literacy is one of the major challenges facing countries across the globe and has been
receiving significant attention from policy makers worldwide. Financial literacy and inclusion

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are issues of critical importance as we all strive for a more transparent, robust and sustainable
economy, and a fairer society. The financial crisis in 2009 brought the need for increased
financial literacy to the world’s attention. The crisis proved that even advanced countries suffer
from low levels of financial literacy, which can have a potent impact on both local and global
economies. Government authorities can find it hard to reach excluded groups, and many have
identified trusted intermediaries with access to the target group to deliver financial education.
This approach can be effective, provided that the goals of the intermediary are aligned with the
financial education goals, and that the staff are properly trained and incentivized to provide
financial education. Countries need to design programs to ensure people can make sound
financial decisions, select financial products, which best suit their needs, and know how to use
related channels, such as ATMs or mobile banking. However, more research and evaluation is
necessary to further explore the relationship between financial literacy and financial inclusion,
and to identify the impact of financial education initiatives on financial inclusion.
With respect to technological advances, digital technologies are important for inclusion, as they
enable innovative and lower-cost business models for providing financial services, making it
viable 3 to reach the poor. About 260 million unbanked adults in the developing world receive
private sector wage payments in cash. Switching to digital payments could potentially save
significant time and resources for businesses and workers alike. Likewise, agricultural payments
present another chance to expand access to the formal financial system, as roughly 440 million
unbanked adults in the developing world are paid in cash for farm goods. By moving away from
cash and using digital payments to distribute social benefits and wages, governments can reduce
costs and leakage. In the developing world, about 120 million unbanked adults receive
government transfers in cash, according to the World Bank’s Global Findex Database 2014. At

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the same time, more than 31 million unbanked adults in emerging countries are paid government
wages in cash. Digitizing these payments could bring millions of adults into the financial system
for the first time. Likewise, 355 million adults in developing countries with an account send or
obtain domestic remittances in cash or over the counter. Further, 1.3 billion adults with an
account in developing countries pay their trash, water, and electric bills in cash, and over half a
billion adults with an account in developing countries pay school fees in cash. Access to digital
payments generates opportunities to provide more convenient and affordable payment options.
As we continue to adopt innovative financial inclusion models, we need to be positioned at the
forefront of these developments in order to identify and manage the associated risks. More
importantly, we need to be equipped with thorough knowledge of innovative business models to
develop an enabling ecosystem for innovative financial inclusion to flourish in a safe and stable
manner.
1.3 Objectives of the study
To have a meticulous scrutiny on the evolution and relevancy of hybrid warfare is the general
objective of this study. The specific objectives of this study are as follows.
1.3.1 To oversee a brief evolution of commercial banks in Nepal,
1.3.2 To explore the marketing policy of commercial banks,
1.3.3 To analyze the monetary policy 2019/2020.
1.4 Research Questions
The following research questions have been dealt with in this research.
1.4.1 How does the mushroom growth of banks affect the economy of the country?

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1.4.2 What is the relevancy of commercial banks in developing country like Nepal?
1.4.3 Why is merger necessary in Nepali context?
1.5 Limitations of the study
Since this research is related to the qualitative analysis of the secondary data, it has the following
limitations.
1.5.1 This research has been based on the secondary data review.
1.5.2 This research has made a survey in the Nepali context only.

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CHAPTER II
REVIEW OF LITERATURE
2. Marketing can be define in a simple manner as the activities done by the company to take
the product from the place of production to the place of consumption. Similarly, it means the
transfer of ownership of a product or service in exchange of same value. Thus, the essence of
marketing is a transaction or exchange. In this broad sense, marketing consists of activities
designed to generate and facilitate exchanges intended to satisfy human needs or wants.
According to Philip Kotler “Marketing is a social process by which individuals & groups obtain
what they need and want through creating offering and freely exchanging products & services of
value with others.” Cundiff and Still defines marketing as the business process by which
products are matched with markets through which transfers of ownership are affected. According
to E. J. McCarthy “Marketing functions are all those business activities which have to be carried
out as part of the process of marketing, e.g. buying, selling, storage, transportation, pricing,
financing and informing.” Marketing function is specialized activities performed in marketing. A
marketing function is necessary to take the goods and services from the place of origin to place
of consumption. Thus it is an act, or operation or services in order to link the original producer
and ultimate consumer. The marketing functions are built around the process of marketing
involving concentration, equalization and dispersion. The marketing strategy is the game plan for
achieving the broad corporate objectives and specific SBU goals. It is based on the marketing
goals and is formulated by the marketing department. The strategy formulation involves
designing strategies related to product – market scope, product positioning, and product or
customer specific marketing mix. The marketing department must specify the financial, social
and human resource costs and risk involved in the implementation of strategy.

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2.1 Pathak, Krishna Prasad, in 1998 conducted the study on “Coffee Marketing System
in Nepal” found that Nepalese farmers are motivated to plant coffee for better yields and they
technical support and training for professional farming skills. There is no support to farmers
input, supply and sales security were varying weak. Recently emerging community activities
show better symptoms in this respect. Pricing to support farmers was effective due to increased
competition. Market promotion is weak and packing is the first place to start promotional
campaign. Now, push sales is the only measure and no promotions are done. Distribution system
components are assembly transportation, processing and other processing. Through Nepalese
domestic production covers only 22.9% of domestic market. Nepalese coffee is worth exporting
and Nepalese consumers prefer instant coffee mainly imported from India. It shows that Nepal
can develop coffee, as an important cash crop to generate exports which should help in economic
growth, employment generation and mitigating the everincreasing unfavorable balance of trade,
for this professional and institutional approach, is warranted for. The study has recommended
that select better seeds appropriate for Nepalese landscape and climate should be conducted.
Interest Rate 17% is not appropriate for farming and is very high. Enterprising farmers should be
trained so as to make them the bridge between the ordinary farmers and technical exports. Wet
pulping should be introduced and farmers should be facilitated to pulp, hull and grade the beans
and green beans should be introduced in trade. There should be improved in packing of roasted
coffee. Demonstration farms should be developed as the catalysts to incorporate rural people in
modern business ethics. Professionalism should be encouraged in coffee marketing.
2.2 Adhikari, Krishna Prasad in 2002 conducted a study on “Impact of Sales Promotion
Tools on Sales of Cold Drinks: A Case Study of Cold Drinks Market in Chitwan”62 The
study has recommended that an improvement in the test and quality and fixing reasonable. Price
can be helpful measure to increase the volume of sales in the market. The company should

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increase the incentive to the wholesalers/ distributors so as to motivate and encourage them to
focus their transactions cold drinks. The company should diversify its market by penetrating into
potential rural areas. It should establish efficient distribution networks and provide reasonable
amount of commission at each level. Although Mr. Hari Lamichhane had conducted a similar
study in the same study area, this study has been more focused on studying the consumer’s
perspective in their consumption behavior of cold drinks. This study has also integrated the
retailer level survey in order to examine the distribution system of cold drinks in the study area
and find out what the channel members; particularly the retailers give priority in selling cold
drinks.
CHAPTER III
RESEARCH METHODOLOGY
3.1 Research Method
In this chapter, I have discussed the sources of data, tools of data collection, the paradigm and
approach of study and the analysis and interpretation of data under the main heading of research
methodology as follows.
3.2 Sources of Data and its Analysis and Interpretation
The data have been collected from the secondary source. The books, journals, documents,
research findings, internet, articles have been consulted for this research. Since this study focuses
on the commercial banks and their marketing policy in Nepal, the analytical and descriptive
approaches have been adopted to carry out this research. The qualitative method has been
utilized to fulfill the purpose of the study.

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The data generated from the secondary sources are selected, organized and categorized. The data
under each theme has been discussed, analyzed and interpreted. Doing so, the relevant theories
and literature to support the data have been utilized and also retrieved the meaning out of them.
Thus, the meaning generated, in this way, has been presented in the form of findings of this
research.
3.3 Ethical Considerations
The ethical issues for the researchers arise during the data collection, data interpretation and
thesis writing stages. In order to address the ethical issues, the data taken from the secondary
sources have been adequately credited in the form of citation and references.
CHAPTER IV
COMMERCIAL BANKS AND ITS MARKETING POLICY IN NEPAL
4.1 Current Situation of Commercial Banking
Nepal has been struggling to maintain macroeconomic balance for a couple of years now. Low
growth rate, high unemployment, balance of payments deficit, ballooning trade deficit, and high
and sticky inflation are some of the pressing existing macroeconomic challenges. Now, add to
that list banking and liquidity crises engendered largely by the bank and financial institutions
(BFIs) themselves and to some extent by Nepal Rastra Bank (NRB), the central bank- and its
disastrous consequences in and beyond the banking system.
The NRB ignored the unhealthy competition questionable lending to few sectors, and
governance in financial sector. In doing so it let new BFIs pop up without even evaluating if the

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economy needs so many of them, and took damage control measures of late. Meanwhile, the
BFIs engaged in unhealthy and imprudent lending out of desperation to survive amidst cut throat
competition, which is getting masty by the day. The BFIs' inability to effectively cope with the
pressure to increase deposit and lending, and to attain unsustainable profit targets is leading to a
situation where all profits are private but losses are social, ie. Tax payers pay the cost of reckless
business practices of the BFIs in the form of expensive rescue packages.
The tendency to seek short term, quick returns against long term viability and sustainability is
leading the BFIs in a path of self-destruction. For a healthy banking industry, Nepal needs fewer
but stronger BFIs with sound corporate governance. Furthermore, there has to be an
enhancement of regulatory and supervisory capabilities of NRB. The playing field has gotten
unnecessarily congested amidst less than proportionate growth rate in the number of depositors.
When Vibor Bikas Bank (VBB) knocked on the doors of Nepal Rastra Bank (NRB) on June 9,
2011 to either inject money in the development bank or to take over management, it rattled the
banking industry and the already suspicious depositors. There were rumors and anticipation that
due to excessive loan exposure to real estate, housing and construction sectors bank and financial
institutions will land in a danger zone sooner or later.
4.2 Growth of Commercial Banks in Nepal
In 1983 and 1993 there were two and eight commercial banks respectively. By January 2006,
there were 17, including joint ventures. There were 4 development banks in 1993 and as of
January 2020 there are 27 commercial banks.

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4.3 BFI's Status of Assets, Deposits, and Loan Forwards
Nepal’s Total Deposits was reported at 23.646 USD bn in Feb 2020. This records an increase
from the previous number of 23.561 USD bn for Jan 2020. Nepal’s Total Deposits data is
updated monthly, averaging 7.758 USD bn from Jan 2001 to Feb 2020, with 230 observations.
The data reached an all-time high of 23.646 USD bn in Feb 2020 and a record low of 2.253 USD
bn in Jan 2001. Nepal’s Total Deposits data remains active status in CEIC and is reported by
CEIC Data. The data is categorized under World Trend Plus’s Global Economic Monitor –
Table: Total Deposits: USD: Monthly: Asia. CEIC converts monthly Total Deposits into USD.
Nepal Rastra Bank provides Total Deposits in local currency. Nepal Rastra Bank average market
exchange rate is used for currency conversions. Total Deposits covers all commercial banks.
4.5 Consequence of the Mushroom Growth
By overlooking the need for having a limited number of BFIs, the evolving depositor base, and
financial penetration over the years, the NRB let too many BFIs to pop up. It created a BFI
bubble. This was followed by intense competition of not only between banks in the same
category but also between BFIs in different categories, leading to an informal war in offering
high deposit rates and lending without differentiating markets, products, and borrowers'
creditworthiness. It reflected bad corporate governance, and a lack of innovation and R&D in the
sector. The resulting lending surge in real estate and housing markets unnaturally swelled their
prices, leading to a real estate and housing bubble.
4.6 Causes of the recent liquidity and banking crises

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Below we list out the points worthy enough of being labeled as a cause for the recent banking
and liquidity crisis. There have been misleading and incongruous arguments floating around
about the causes of the ongoing liquidity and banking crisis. They are made by stake holders who
fail to see how their vested interest and incompetence is jeopardizing the future of the banking
industry, and is potentially derailing an already unstable economy.
First, bankers and businessmen are arguing that delayed budget and disbursement of
development expenditures are causing liquidity crisis. This argument does not hold much water.
It is true that budgets have been coming out late for two years now, and there has not been
normal flow of money from the Ministry of Finance and other Ministries to the respective
corners of the country via BFIs. This has definitely limited liquidity in the banking system But it
in itself is not the main cause. Instead, it is a minor stimulant to the liquidity crisis. If delay in
development expenditure is the cause, then why did Nepal not have liquidity crisis when similar
episodes occurred in the past? Second, the withdrawal of large amount of money by institutional
depositors, especially NRB and Nepal Army, has drastically reduced reserves in BFIs', especially
category B and C, vaults and squeezed available liquidity. This again is a stimulant to the
liquidity problem, not its main cause. If just by pulling out a few millions of mature deposits by
institutional depositors puts the BFIs in trouble, then there is something wrong with the way they
are doing business. It points to bankers' incompetence and inability to run BFIs. Again, both are
not the real causes, but stimulant to the liquidity crisis. These arguments are trumpeted by certain
businessmen who are afraid of divulging their sources of income and dutifully pay taxes to the
go vemment. Fourth, some argue that a decline in reserves, precisely monetary base (which is
equal to currency in circulation and reserves of banks held in central bank), due to a slowdown in
growth of remittances, led to a situation where credit growth was higher than deposit growth.

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They assert that it is resulting in a liquidity crisis, and to return to normal, the NRB should
purchase bonds and treasury bills and lower cash reserve ratio and the already high capital
requirements all of which will help increase liquidity). Of all the arguments, this holds some
truth. But increasing liquidity without correcting the distorted market would only postpone the
inevitable. The competition to attract deposits and give out loans intensified with the increase in
the number of BFIs, who competed without much product and market differentiation. Without
considering total deposits and their ability to fulfill demand for withdrawals, the BFIs lent
unsustainable amount of loans to earn quick returns to meet profit target before the annual
general meeting of shareholders anddirectors.
4.7 Moving forward: Merger and IPOs
Many financial and economic analysts failed to perceive the rapid changes happening in the
banking sector. Similarly, business journalists utterly failed to even read chies of troubles
starting more than a decade ago when the now liquidated Nepal Development Bank (NDB) was
put under management review, and when the number of BFIs increased multifold in a matter of
just five years.
Financial institutions have mushroomed in the country. Given the size of our financial system the
number of BFIs looks more than normal. Many of these institutions had invested in the real
estate sector without any long-term benefits. NRB was forced to fix a ceiling on real estate
investment by banks after a surge in the volume of non performing loans. Investment by
financial institutions in unproductive sectors caused a liquidity crisis in the market. These
institutions also failed to maintain corporate governance. Financial institutions should be able to
return money to depositors as required. NRB had introduced Merger by laws 2011 to improve
the condition of financial institutions.

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The introduction of merger policy has created opportunities for banks to increase their capital
base. At the same time, the BFIs are also going ahead with Initial Public Offerings (IPOs) to
increase their capital base. The trend of announcing merger plans by the banks and financial
institutions (BFL) has gathered pace in recent months.
4.8 Merger: Why is it needed?
Apparently, the universal objectives of the merger or acquisition are to consolidate the capital,
reduce operational expenses, expand business and maximize profits. However, in our case,
mergers of three distinct natures now seem to be in the offing, Firstly, relatively large institutions
are planning to create a larger capital base so they could compete with global players who could
potentially begin their operations here owing to WTO arrangements. The second type of merger
would be compulsive of sorts as the NRB has asked the BFIs belonging to the same business
house to integrate without any "ifs and buts". The third types are those who fear the complete
meltdown if they fail to merge soon to consolidate resources, introduce corporate best practices
and reduce expenses.
As there is no environment for increasing capital by issuing rights shares and bonus shares as
that will not be enough to raise capital to the required level, finance companies have no other
option than to go for a merger. Many finance companies have thought that's it's better to opt for a
merger than to face action from the central bank for failing to increase the capital to the required
level next year. Also the shaken public confidence on towards banking institutions due to recent
problems in the banking sector and their inability to give proper returns to their shareholders, has
forced the BFIs to increasingly lean towards consolidation
Consolidation is necessary also to increase the paid-up capital since the possibility to increase of

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paid up capital by issuing rights shares is very slim Moreover, the size of bans being demanded
by single borrowers has been increasing in recent years. So, BFIs having low paid-up capital
cannot fulfill such demand.
4.9 Major Provisions of Merger By-Law
4.9.1 'A', 'B' and 'C' class financial institutions can merge into each other. 'D' class FI can
merge with another 'D' class FI only. Fls that want to merge should form a separate merger
committee and sign Memorandum of Understanding (MoU).
4.9.2 The due process including MoU should be completed before applying to the Nepal
Rastra Bank (NRB for Letter of Intent (Lol). NRB should hold a meeting within 15 days of
receiving Lol application NRB decides whether to issue Lol or not after conducting discussions
and detailed study of concerned institutions.
4.9.3 Due Diligence Audit should complete within six months of receiving Lol from the
central bank.
4.9.4 The detailed factual report comprising assets and liabilities of concerned institutions
should be submitted to the NRB. Copy of the decision regarding name, address and share ratio of
concerned financial institutions should be submitted to NRB. Action plan of concerned financial
institution including date of operation after merger process is completed should be submitted to
NRB.
4.9.5 Other documents as prescribed by the NRB should be submitted to NRB.
4.10 Conditions for force merger
Merger is a need of the entire financial system of Nepal. The share swap ratio is obviously an

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issue of tension in the pre-merger phase. NRB provides counseling services to all institutions
which want to go for merger. The process is very simple. At first, the BFIs should take the
special decision of merger thorough the General Meeting of shareholders. Then they should sign
a Memorandum of Understanding (MoU) for merger. Then, after foming a merger committee,
they should apply to the central bank for the Letter of Intent. NRB conducts interaction with
concerned stakeholders and provides insights including strengths and weaknesses of the merging
BFIs. If BFIs want to continue the merger process even after the interaction, NRB approves the
Lol. Concemed financial institutions should approve new structure which will come into effect
after the completion of the merger process. NRB should always deal the entire merger process
carefully because merger should not promote monopolistic business.
4.10.1 In case representatives of a family business group. firm or company are
found assuming posts in the boards of directors of two or more BFIs and/or their financial
conditions remain unhealthy.
4.10.2 If the non-perfoming loans (NPL) exceeded 5 percent of the total loan portfolio
for 3 consecutive years. Increase in systematic risk (ie, in a situation when a BFI seems
likely to fail to meet liabilities).
4.10.3 If independent operation of a BFI is causing negative impact on the banking
system. If a BFI faces prompt corrective action (PCA) for three times or more. If NRB
finds that merger of systemically important BFIs will strengthen the entire banking system.
4.11 Monetary Policy for 2019/20
On 24 July 2019, Governor of Nepal Rastra Bank (NRB, the Central Bank), Dr. Chiranjibi Nepal
presented the Monetary Policy for fiscal year (FY) 2020. This policy aims at facilitating the

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achievement of high, sustainable and inclusive growth set forth in Five Year Plan (FY2020–
FY2024) Period. It is aligned with the objective of attaining economic growth of 8.5% while
containing inflation within 6.0% as envisaged in the Fiscal Policy for FY2020. 2. The policy is
focused on employment generation, internal production, entrepreneurship development and
financial accessibility. The accessibility will be enhanced through modernization of payment
system with an emphasis on financial governance and consolidation. Currency peg that serves as
a transparent anchorage to Monetary Policy is continued in 2020. To address short-term interest
rate volatility, an interest rate corridor (IRC) was introduced since FY2017. This instrument has
been amended for FY2020. The standing liquidity facility (SLF) or the ceiling rate 5 has been
lowered from 6.5% in 2019 to 6.0% in 2020, and policy and floor rates to 4.5% and 3.0%,
respectively, narrowing the IRC width. The interbank interest rates are expected to hover around
4.5%, maintaining short-term interest rate stability. It addresses an intermittent liquidity crunch,
the NRB has allowed banks and financial institutions (BFIs) to access foreign loans (in US dollar
and other convertible currencies) from banks and other sources like pension and hedge funds.
The interest rate on such loans should not exceed six-month London Inter-bank Offered Rate
(LIBOR) plus 4.0% from LIBOR plus 3.0% set a year earlier. The BFIs can also mobilize fixed
deposits in foreign currencies for at least 2 years from foreign institutional depositors and non-
resident Nepalis. By the end of FY2020, commercial banks must compulsorily float debt
instruments amounting to at least 25.0% of their paid-up capital. The productive sector lending
requirements for BFIs remain unchanged. The commercial banks will have to lend a minimum of
10.0% to agriculture and a minimum of 15.0% to energy and tourism sub-sectors. Development
banks and finance companies will have to lend a minimum of 15.0% and 10.0%, respectively of
their total loans to priority sector. As of midJune 2019, the shares of loans of BFIs to agriculture
and tourism 6 sectors stood at 6.5% and 3.9%, respectively. The deprived sector lending 8

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requirement at a minimum of 5.0% of their total lending remains unchanged for commercial
banks, development banks and finance companies. The weighted average spread rate for
commercial banks should be maintained at 4.4% by the end of FY2020. The general refinancing
rate on loans to priority sectors 9 has been slightly revised down to 3.0% from 4.0% a year
earlier. The special refinancing rate has been left intact at 1.0%. The BFIs can charge a
maximum of 7.0% under general refinancing and 3.0% under special refinancing.
4.12 Key Implications in economy
This policy is expansionary in nature and may lead to an overheating of the economy. The policy
envisions broad money supply growth of 18.0% and an internal credit growth of 24.0%. To
support this high credit growth, NRB has cut both bank and floor rates by 50 basis points each. It
has allowed BFIs to borrow foreign loans from banks and other sources like pension and hedge
funds. The BFIs can further mobilize fixed deposits in foreign currencies from foreign
institutional depositors and non-resident Nepalis. This amount can then be fully injected in
Nepali currency into the local economy. If higher credit infusion is absorbed by tradeable sector,
this will have a high fiscal multiplier effect. But if more credit is infused in real estate, working
capital and overdraft, this will trigger financial risk and instability. Data to midJune 2019
suggests that BFIs lending to real estate, working capital and overdraft constitute 42.2% of their
total lending, equivalent to 38.2% of GDP. This accommodative Monetary Policy combined with
the expansionary Fiscal Policy may build pressure on prices and external stability.
The headline inflation target of 6.0% in FY2020 seems realistic. This target will be about 1.4
percentage points higher than the average annual inflation of FY2019. Inflation is likely to inch
up because monsoon is destined to be less favorable this year, affecting agriculture production
compared to the previous year. This will intensify food inflation. The continued rise in the

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import of goods fueled by remittance growth will further elevate inflation. The expectation of a
slight uptick in inflation in India will also build inflationary pressure.
This policy is aimed at strengthening banking sector for financial sector stability. Realizing the
fact that Nepal currently has many commercial banks and microfinance institutions, the NRB has
offered incentives to those institutions opting to merge by FY2020. With a cut in the number of
banks, the central bank will be better able to execute the smooth regulation and supervision.
Larger banks with larger paid-up capital will be in a position to fund large projects. The effective
implementation of ‘Countercyclical Buffer System’ and issuance of guidelines on ‘Liquidity
Coverage Ratio’ and ‘Net Stable Funding Ratio’ will ensure Nepal’s commitment to financial
sector stability. The full implementation of Basel II in development banks and finance companies
and the system of ‘stress testing’ of these institutions will further strengthen Nepal’s banking
sector.

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CHAPTER V
FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Findings
Banking products offered these days are generally very much standardized. As per the type of the
product, some of the customers adjust their needs accordingly. Banks do have the experience of
working in de-marketing in Nepal. There is no competition in offering products at different
interest rates. It looks like a banks’ cartel in charging interest on loan and providing interest on
deposit. On the basis of customers’ survey, banks should develop the respective products and sell
them into the market. In this age of new economy, ‘knowledge’ is termed as a driving force of
the economy. Besides, knowledge is taken as factor of production in lieu of land, labor and
capital. In a new economy, customers design their products and hand them over to the banks for
development and marketing accordingly. In foreign countries, banks differentiate the products,
services, prices and delivery channel for each customer. To compete with the foreign banks,
Nepalese banks have to consider the new challenges and encourage the customers to identify
their needs and develop capability to meet such designed needs. A new system in a new
economy may be popular among the educated people. For the new economy, it needs to have
network that connects potential customers and banks. These networks include the intranet where
employees are connected within a bank to one another and to the bank mainframe; extranet
where a bank is connected with suppliers and market makers; and the internet where consumers
are connected to the worldwide “information repository.”2 The combination of operational
customization and marketing customization is called customerization. The process of
customization may be very difficult to implement for complex products. With the passing of

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time, there should be a change in the models of commercial banks. In the changing context,
commercial banks have started to plunge into investmentbanking markets. Barriers between
banks, insurance companies and securities companies have been gradually reducing allowing the
formation of diversified financial groups. Each of the big banks has moved some distance from
the traditional banking strategy of holding assets on the balance sheet. Banks in the developed
countries have started to use loans as securities and sell them in the capital markets rather than to
hold them in the balance sheet. On top of that, the large commercial banks have become buyers
and sellers of derivatives, such as credit-default swaps and interest-rate swaps, both for profit and
to hedge their other assets and liabilities. In this way, the bank acts as a lender and as a trader. In
each stage of business transactions, it needs to have marketing activities. Without proper
marketing both in ability and practice, banks may not be able to survive.
5.2 Conclusion
The banking business in Nepal is becoming very competitive and would be further more
competitive after the year 2011 A.D. Customer satisfaction would be the key to lead and retain in
the market. The bank with very effective service mechanism will survive in the market and can
face growing competition and challenges. Marketing strategy is the first and foremost tool to
develop a financial institution. It includes a series of wellconceived policy, suitable and
sufficient staffing, and development of conducive infrastructure and generation of felt-need
based product and services, client friendly approaches. The success of any financial institution is
mainly quality based than simply its number of branches or its size capital investment, although
on the national basis, Nepal government has recently asked the banks to emphasize in its service
quality than on opening new branches, the respondents of the study area, have highly appreciated
the marketing strategies of the banks functioning in Birgunj.

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5.3 Recommendations
5.3.1 Bank should focus on developing new products of its own and make a suitable market
strategy in the matters concerned.
5.3.2 Well suited Training and Orientation programs should be prepared and launched
specially to increase rural customers, preferably a trainers group should be recruited by each
bank.
5.3.3 Pre-marketing survey should be done to identify the fell needs of the rural and urban
customers separately and accordingly well suited promotional activities should be developed, be
allotted to the field branches.
5.3.4 Optimal Promotional budget should be allocated.

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REFERENCES
Books
Alderson, Wrope; 1957, “Marketing Behavior and Executive Action” Homewood III: Rechard
D. Irwin
Agrawal, Govinda Ram; 1982, “Marketing for Small Business” CEDA, T.U., Kirtipur
Agrawal, Govinda Ram; 2000, “Markeging Management in Nepal” M.K. Publisher &
Distributor, Kathmandu
Carvin, David W; Hills, Gerald E; Woodruff, Robert B; 1996, “Marketing Management”,
Richard D. Irwin Inc. USA
Dr. Joshi, Shyam; 2059 BS, “Economic Policy Analysis”, Taleju Publication, Kathmandu.
Journal Articles
https://www.ceicdata.com/en/indicator/nepal/non-performing-loans-ratio
https://easychair.org/publications/preprint/8Jw3
https://www.nrb.org.np/ofg/monetary_policy/Monetary_Policy_(in_English)--2019-
20_(Full_Text)-new.pdf
Newspaper Articles
https://kathmandupost.com/columns/2019/06/30/there-are-too-many-banks