What is Investment Banking in Nepal and How Does it Work?
Investment banking in Nepal represents a rapidly evolving financial sector that serves as a crucial bridge between capital seekers and investors. As of 2025, the landscape of investment banking in Nepal has undergone significant transformations, particularly with recent regulatory amendments aimed at improving the economic and business environment.
The Nepali investment banking sector operates under a comprehensive regulatory framework overseen by three primary authorities: Nepal Rastra Bank (NRB), Securities Board of Nepal (SEBON), and the Investment Board of Nepal (IBN). These institutions work collaboratively to ensure that investment banking activities align with national economic objectives while maintaining investor protection standards.
Furthermore, investment banking services in Nepal encompass merchant banking, securities trading, underwriting, and advisory services. The sector has witnessed substantial growth, with the Investment Board of Nepal setting ambitious targets to approve a minimum of US$10 billion in investments through their five-year business plan (FY 2021-22 to 2025-26).
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How Many Licensed Investment Banks Operate in Nepal Currently?
The current banking landscape in Nepal shows a structured approach to financial institution classification. According to recent data from Nepal Rastra Bank, there are 20 commercial banks classified as Class “A” banks as of mid-January 2025. Additionally, the central bank has licensed 16 development banks and 17 finance companies, creating a diverse ecosystem for investment banking services.
| Institution Type | Number of Licensed Entities | Regulatory Classification |
|---|---|---|
| Commercial Banks (Class A) | 20 | Nepal Rastra Bank |
| Development Banks | 16 | Nepal Rastra Bank |
| Finance Companies | 17 | Nepal Rastra Bank |
| Merchant Bankers | Multiple | SEBON Regulated |
Moreover, merchant banking services are provided by specialized institutions operating under Securities Businessperson (Merchant Banker) Regulations established by SEBON. These entities play a vital role in securities issuance, trading facilitation, and investment advisory services.
What Are the Legal Requirements for Investment Banking in Nepal?
Legal compliance forms the cornerstone of investment banking operations in Nepal. The regulatory framework has recently been strengthened through the Act to Amend Some Nepal Acts Relating to Improving Economic and Business Environment and Enhancing Investment 2081 (2025 A.D.), which received presidential authentication on March 31, 2025.
Primary Legal Framework
The investment banking sector operates under several key legislations:
Securities Act 2063 governs securities transactions, insider trading regulations, and fraudulent transaction prevention. This act establishes comprehensive guidelines for securities business persons and outlines severe penalties for violations.
Bank and Financial Institution Act 2073 (2017) provides the foundational legal structure for banking operations, including sections 45, 48, and 77 that specifically address investment banking activities.
Foreign Investment and Transfer of Technology Act (FITTA) 2019 regulates foreign investment participation, though it maintains certain restrictions. Notably, Nepalis remain prohibited from investing abroad under the Act Restricting Investment Abroad (ARIA) 1964, though this law may face abrogation soon.
Licensing and Compliance Requirements
Investment banking entities must obtain appropriate licenses from regulatory authorities. Commercial banks require Class “A” licensing from Nepal Rastra Bank, while merchant bankers must register under SEBON regulations. The licensing process involves stringent capital requirements, governance standards, and operational capability assessments.
Additionally, all investment banking activities must comply with anti-money laundering provisions, know-your-customer requirements, and regular reporting obligations to respective regulatory authorities.
Which Investment Opportunities Are Available Through Nepali Banks?
The investment banking sector in Nepal offers diverse opportunities across multiple asset classes and sectors. Recent policy developments have expanded the scope of available investment options while maintaining prudential safeguards.
Securities Market Investments
The Nepal Stock Exchange (NEPSE) serves as the primary platform for securities trading, facilitated by licensed merchant bankers and securities dealers. Investment opportunities include:
Equity Securities: Public companies list their shares through Initial Public Offerings (IPOs) managed by merchant bankers. Recent IPO activities include companies like Daramkhola Hydro Energy and Sreenagar Agritech Industries.
Fixed Income Securities: Government bonds, corporate debentures, and development bank bonds provide stable income investment options.
Mutual Funds: Schemes like Kumari Sunaulo Lagani Yojana offer diversified investment opportunities with professional fund management.
Sectoral Investment Focus Areas
The Investment Board of Nepal has identified priority sectors for investment promotion:
- Hydroelectric Power Generation: Nepal’s abundant water resources present significant opportunities for power sector investments
- Tourism and Hospitality: Infrastructure development projects aligned with national tourism promotion
- Manufacturing and Industrial Development: Import substitution and export-oriented industries
- Information Technology: Growing digital economy initiatives and IT infrastructure projects
Green Finance Initiatives
Nepal has introduced the Nepal Green Finance Taxonomy 2024, creating structured opportunities for environmentally sustainable investments. This initiative aligns investment banking services with global sustainability standards while addressing climate change mitigation objectives.
How Do Investment Banking Regulations Affect Foreign Investors?
Foreign investment regulations in Nepal present both opportunities and constraints that significantly impact investment banking operations. The regulatory environment has evolved considerably, particularly following recent legislative amendments in 2025.
Current Foreign Investment Framework
The Foreign Investment and Transfer of Technology Act (FITTA) 2019 governs foreign participation in Nepali investment banking and related sectors. However, certain restrictions remain in place that affect foreign investment flows.
Investment Restrictions: The FITTA maintains a negative list of prohibited investment sectors, though the specific sectors affecting investment banking have seen some liberalization. Foreign investors must navigate these restrictions carefully when considering investment banking opportunities.
Repatriation Policies: Foreign investors face certain limitations on profit repatriation and capital exit, though recent amendments aim to provide more flexibility for legitimate investment activities.
Recent Legislative Developments
The Act to Amend Some Nepal Acts Relating to Improving Economic and Business Environment and Enhancing Investment 2081 (2025 A.D.) has introduced several changes affecting foreign investment:
Enhanced Investment Facilitation: The amendments focus on improving the overall business environment, potentially easing certain bureaucratic hurdles for foreign investors.
Regulatory Streamlining: Multiple agencies’ approval processes have been simplified, reducing the time and complexity involved in investment banking transactions involving foreign capital.
Practical Implications for Foreign Investors
Foreign institutional investors and individual investors must work through licensed merchant bankers and securities dealers to access Nepali capital markets. The process involves:
- Registration with appropriate regulatory authorities
- Compliance with foreign exchange regulations administered by Nepal Rastra Bank
- Adherence to sector-specific investment limits where applicable
- Regular reporting requirements to ensure regulatory compliance
What Services Do Merchant Bankers Provide in Nepal?
Merchant banking services in Nepal have expanded significantly, offering comprehensive financial solutions to corporate clients and individual investors. These services operate under the regulatory oversight of Securities Board of Nepal (SEBON) through the Securities Businessperson (Merchant Banker) Regulations.
Core Merchant Banking Services
Securities Issuance and Underwriting: Merchant bankers facilitate Initial Public Offerings (IPOs), rights issues, and debenture issuances. They provide comprehensive services from documentation preparation to regulatory compliance and investor outreach.
Portfolio Management: Professional asset management services help institutional and individual clients optimize their investment portfolios based on risk tolerance and return objectives.
Corporate Advisory: Strategic advisory services include mergers and acquisitions, corporate restructuring, and financial planning guidance for businesses seeking capital market access.
Trading and Brokerage: Licensed merchant bankers facilitate securities trading on NEPSE, providing execution services and market-making activities where permitted.
Specialized Investment Banking Functions
The merchant banking sector has developed specialized capabilities to meet diverse client needs:
Project Finance: Large-scale infrastructure projects, particularly in hydroelectric power and manufacturing sectors, receive structured financing solutions through merchant bankers.
Trade Finance: Import-export financing, letter of credit facilities, and foreign exchange hedging services support international trade activities.
Wealth Management: High-net-worth individuals access sophisticated investment products and personalized financial planning services.
Regulatory Compliance and Risk Management
Merchant bankers must maintain strict compliance with SEBON regulations, including:
- Capital adequacy requirements as specified in merchant banker licensing conditions
- Client fund segregation and custody arrangements
- Regular reporting and audit requirements
- Professional qualification requirements for key personnel
How Has Nepal’s Investment Banking Evolved in Recent Years?
The evolution of investment banking in Nepal reflects broader economic development trends and regulatory modernization efforts. Recent years have witnessed substantial changes that position the sector for continued growth.
Regulatory Modernization
The Securities Board of Nepal has implemented significant regulatory improvements through its Capital Market Reforms Roadmap 2023. These reforms address market microstructure, investor protection, and operational efficiency improvements.
Technology Integration: Digital trading platforms and electronic settlement systems have modernized market operations, reducing transaction costs and improving accessibility.
Regulatory Harmonization: Coordination between Nepal Rastra Bank, SEBON, and other regulatory authorities has improved, reducing regulatory overlap and compliance burdens.
Market Development Indicators
Several metrics demonstrate the sector’s growth trajectory:
Trading Volume Growth: NEPSE trading data for 2024 shows increased market participation and transaction volumes compared to previous years.
Market Capitalization Expansion: The overall market capitalization has grown, reflecting both new listings and price appreciation of existing securities.
Institutional Participation: Foreign institutional investors and domestic institutional investors have increased their market participation, bringing professional investment approaches to the market.
Policy Support Initiatives
The government’s commitment to investment banking development is evident through several policy measures:
Monetary Policy Support: Nepal Rastra Bank’s cautiously accommodative monetary policy stance has supported credit growth and investment activity. The central bank reduced the policy rate by 50 basis points in July 2024, providing additional liquidity support.
Investment Promotion: The Investment Board of Nepal’s strategic plan targeting US$10 billion in approved investments demonstrates the government’s commitment to creating an enabling environment for investment banking growth.
What Are the Current Challenges Facing Investment Banking in Nepal?
Despite significant progress, investment banking in Nepal faces several challenges that require strategic attention and policy intervention.
Regulatory and Compliance Challenges
Multiple Regulatory Oversight: The involvement of multiple regulatory authorities sometimes creates coordination challenges and compliance complexity for investment banking entities.
Capital Market Depth: Limited market depth and liquidity constraints affect the ability of investment banks to execute large transactions efficiently.
Foreign Investment Restrictions: Ongoing restrictions on Nepali investment abroad and certain foreign investment limitations affect market development potential.
Market Infrastructure Limitations
Technology Infrastructure: While improvements have been made, technology infrastructure for trading, settlement, and risk management systems requires continued investment and upgrades.
Human Resource Development: The specialized nature of investment banking requires continuous professional development and training programs to maintain competency standards.
Product Innovation: Limited product diversity compared to more developed markets constrains investment banking revenue opportunities and client service capabilities.
Economic Environment Factors
Economic Volatility: Macroeconomic instability and external sector challenges can affect investment banking operations and client demand for services.
Credit Risk Management: The construction sector’s payment challenges and banking regulation strictness have required policy interventions, including extended payment periods until December 2024.
Future Prospects for Investment Banking in Nepal
The outlook for investment banking in Nepal remains optimistic, supported by several positive developments and strategic initiatives.
Growth Drivers
Infrastructure Development: Major infrastructure projects, particularly in hydroelectric power generation and transportation, will create substantial investment banking opportunities.
Financial Market Deepening: Continued development of bond markets, derivative instruments, and alternative investment products will expand service offerings.
Digital Financial Services: Integration of fintech solutions and digital banking services will enhance operational efficiency and client accessibility.
Policy Support Framework
The government’s commitment to investment banking development is demonstrated through:
Investment Board Strategic Plan: The five-year business plan targeting US$10 billion in approved investments provides a clear roadmap for sector growth.
Regulatory Modernization: Ongoing regulatory reforms aim to improve market efficiency, investor protection, and international competitiveness.
Economic Environment Improvements: The Act to Amend Some Nepal Acts Relating to Improving Economic and Business Environment and Enhancing Investment 2081 (2025 A.D.) addresses several structural impediments to investment growth.
International Integration Opportunities
Nepal’s investment banking sector is positioned to benefit from regional economic integration and international cooperation:
South Asian Integration: Regional trade and investment agreements may create cross-border investment banking opportunities.
Foreign Institutional Investment: Continued liberalization may attract additional foreign institutional investors and international merchant banking partnerships.
Technology Transfer: International collaboration in financial technology and risk management systems will enhance sector capabilities.
Conclusion: Investment Banking in Nepal’s Promising Future
Investment banking in Nepal has emerged as a vital component of the country’s financial sector, offering diverse opportunities for investors, corporations, and financial professionals. The sector’s evolution reflects broader economic development trends and demonstrates resilience in adapting to changing regulatory and market conditions.
The comprehensive regulatory framework, while complex, provides necessary investor protection and systemic stability. Recent legislative amendments and policy initiatives demonstrate the government’s commitment to creating an enabling environment for investment banking growth.
For potential investors, legal professionals, and the general public, understanding investment banking in Nepal requires appreciation of both opportunities and challenges. The sector’s continued development depends on sustained policy support, regulatory modernization, and market infrastructure improvements.
As Nepal’s economy continues to develop and integrate with global markets, investment banking in Nepal is well-positioned to play an increasingly important role in capital formation, economic growth, and financial sector development. The sector’s success will ultimately contribute to Nepal’s broader economic development objectives and financial inclusion goals.
This comprehensive guide to investment banking in Nepal provides current information based on 2025 regulatory developments and market conditions. For specific investment decisions or legal compliance requirements, consult with licensed professionals and regulatory authorities.
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