Scope of Banking & Insurance Sectors in Nepal

The financial sector in Nepal has become stronger in terms of capital and the number of customers. It has become globally competitive and diverse aiming, at higher productivity and efficiency.

Exposure to worldwide competition and deregulation in Nepal financial sector has led to the emergence of better quality products and services. Reforms have changed the face of Nepal banking and finance. The banking sector has improved manifolds in terms of capital adequacy, asset classification, profitability, income recognition, provisioning, exposure limits, investment fluctuation reserve, risk management, etc.

Diversifying into investment banking, insurance, credit cards, depository services, mortgage financing, securitizations has increased revenues. As large number of players in various fields enters the market, competition would be intensified by mutual funds, Non Banking Finance Corporations (NBFCs), post offices, etc. from both domestic and foreign players. All this would lead to increased sophistication and technology in the sector. Corporate governance would come into the picture and other financial institutions would have to reach global standards. Also the limit for FDI in private banks is increased to 74% and the limit for FII is 49%. There are many challenges ahead for the banking sector such as technology, consumer satisfaction, corporate governance, risk management, etc. and they are redefining their priorities, which are now focused on cost reduction, product differentiation and customer centric services. Some of the major players in this sector are kumari bank, NIBL, Himalayan Bank, Nabil Bank, Everest Bank, MBL, NIC, BOK etc.

The insurance sector has opened up for private insurance companies with the enactment of Nepal Insurance Act Act, 2063. A large number of companies are competing under both life and general Insurance. The FDI cap/equity in this sector is 26% and the proposals have to be cleared by Insurance Regulatory and Development Authority (NCA) established to protect the interest of holder of Insurance policy and act as a regulator and facilitator in the industry. Some of the major players in this sector are PrimeLife Insurance Co. Ltd. NLIC, ALICO, etcc. Various types of policies and instruments are coming up in the market to attract more customers. Most of the population of Nepal is not insured, hence there is a lot of scope in this sector and a number of companies are planning to enter the sector. Every futuristic individual would want himself to get insured.

Capital markets have a long history of over 100 years in Nepal. Nepal Stock Exchange came into existence more than a hundred years ago to remove direct government control. Nepalese companies are now allowed to raise capital from abroad and Foreign Institutional Investors are allowed to enter the market due to an important policy initiative in 2063. The depository and share dematerialization has enhanced the performance of the capital market reducing processing time and increasing returns.

For a stronger and resilient financial system, Nepal needs to move beyond peripheral issues and act maturely by increasing profitability and efficiency, providing better solutions to the customers.