Nepal Rastra Bank (NRB) has told commercial banks to open branches in local units lacking banking services.

The central bank recently summoned the CEOs of all commercial banks to its office and asked them to start work to open branches in local units without banks.

As per the new federal setup, 744 local units have been established in the country including metropolises, sub-metropolises, municipal councils and village councils.

NRB’s move follows the recently announced budget statement under which the government envisages having at least one commercial bank branch in each local unit. 

The Finance Ministry is planning to deposit the funds allocated to local bodies directly into their bank accounts.    

“Necessary arrangements will be made to open at least one branch of commercial banks in each rural municipality and municipality,” the budget statement said. “Arrangements will be made to maintain local consolidated funds in commercial banks and obtain the electronic data of such funds at the Financial Comptroller’s Office.”

Currently, banking facilities are available in only 325 out of the 744 local bodies, according to NRB. 

In order to implement the government’s plan, the country’s 28 commercial banks will need to open at least 419 new branches. 

Bankers, however, said it might be difficult to open branches in each local unit as some places are very remote without basic infrastructure. 

“To open a bank branch, we must have a motorable road, electricity and reliable internet service,” said Gyanendra Prasad Dhungana, vice-president of the Nepal Bankers’ Association. “In a location without such infrastructure, we will not be able to open our branch although we would like to help the government to achieve its goal.” 

NRB said it was ready to provide every kind of support to commercial banks to expand their branch network and would be making an announcement through the upcoming monetary policy. 

“We will create a provision exempting banks from obtaining NRB’s approval to open branches in village councils and municipalities where there are no banks,” said Narayan Prasad Poudel, executive director and spokesperson for NRB. 

“Also, we will continue our policy of providing interest-free loans to banks to open branches in remote village councils and municipalities where there is no presence of commercial banks.” 

The central bank provides interest-free loans of up to Rs5 million to banks and financial institutions (BFIs) to open branches in the headquarters of 14 districts where there are few BFIs. 

The loan amount will be doubled to Rs10 million to establish branches outside the headquarters.