PAID-UP CAPITAL REGULATIONS AND BANKING SECTOR RESILIENCE: LESSONS FROM NEPALESE BANKS

Abstract

Commercial banks play a pivotal role in advancing economic growth in developing countries, particularly in regions where a significant portion of the population earns low wages and relies on traditional agriculture. These banks, due to their scale, serve as crucial sources of capital for infrastructure development and the establishment of new businesses. Term loans, often utilized to channel funds from banks to enterprises, raise concerns regarding asset management and loan collection in developing countries. This study focuses on the context of Nepal, where commercial banking commenced in 1937 with the establishment of Nepal Bank Ltd. The 1990s saw the substantial entry of the private sector into the market. Nepal Rastra Bank (NRB) functions as the central bank responsible for monetary policy regulation. The commercial banking sector in Nepal comprised 28 banks as of 2018, broadly categorized into public sector banks, joint venture banks, and domestic private banks. Public sector banks have historically held the largest loan shares, but their performance lags significantly behind joint-venture and domestic private banks, which exhibit comparable performance levels. The research explores the dynamics of commercial banking in Nepal, shedding light on the performance disparities between different categories of banks, with implications for enhancing the role of these institutions in promoting economic development.