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Concept of Banking System — The banking system refers to the overall mechanism of all banks and financial institutions operating within a country that conduct economic activities and provide financial services. This system includes the central bank, commercial banks, development banks, finance companies, and microfinance institutions.
In simple terms: The banking system is the entire network of banks and financial institutions that manage, control, and regulate the flow of money in the economy.
Objectives of the Banking System:
1. Maintaining Economic Stability:
The banking system regulates the money supply to ensure price stability and financial sustainability.
2. Flow of Credit and Capital:
It ensures the smooth flow of loans and capital to industries, trade, agriculture, and small enterprises.
3. Encouraging Savings and Investment:
It collects public savings and helps channel them into productive sectors.
4. Payment and Transaction Facilities:
The banking system simplifies payments and transactions through cheques, debit/credit cards, mobile banking, and other digital means.
5. Financial Inclusion:
It extends financial services to rural areas, small businesses, and economically disadvantaged communities.
Structure of the Banking System in Nepal
1. Nepal Rastra Bank (NRB) – Central Bank:
The central bank that regulates the entire banking system.
It formulates monetary policy, supervises banks, and manages foreign exchange reserves.
2. Commercial Banks (Class A):
Collect deposits from the public and provide large-scale loans.
Examples: Rastriya Banijya Bank, Nabil Bank, Global IME Bank.
3. Development Banks (Class B):
Provide credit to small industries, agriculture, and businesses.
4. Finance Companies (Class C):
Offer hire purchase, consumer finance, and small-scale loans.
5. Microfinance Institutions (Class D):
Provide small loans and savings facilities to rural and low-income groups.
Importance of the Banking System:
Foundation of the Economy: It serves as the main base and support of the economy.
Control of Money Flow: Helps maintain monetary and price stability.
Credit Distribution: Provides loans to industries, agriculture, and businesses.
Improved Payment System: Makes trade and personal transactions easier.
Financial Inclusion: Ensures equal access to financial opportunities for all citizens.
Conclusion:
Bank = An institution that deals with money.
Banking = The functions and services performed by a bank.
Banking System = The entire network of banks operating across the country.