Finance Minister Bishnu Paudel, while presenting the national budget in the Federal Parliament on May 29, announced the government’s plan to establish a “neobank” within the upcoming fiscal year 2025/26, which begins in mid-July.

The term “neobank” appeared in Nepal’s budget documents for the first time, sparking public curiosity. However, experts clarify that the concept is essentially that of a “digital-only bank”, one that operates entirely online without any physical branches.

Although the terminology is new, the idea itself is not. The government had previously outlined plans for a fully online bank in budget speeches over the past three years.

Announcing the budget for the last fiscal year 2023/24, then-Finance Minister Dr. Prakash Sharan Mahat announced the creation of a digital bank as part of the country’s broader digital economic transformation. A year earlier, in the 2022/23 budget, then-Finance Minister Janardan Sharma committed to making the necessary legal and institutional arrangements to establish a fully digital bank.

Despite these repeated commitments, officials at Nepal Rastra Bank (NRB)—the country’s central bank—say no tangible progress has been made.

“The central bank currently lacks a legal framework to license digital banks,” an NRB executive director said on condition of anonymity. “Given the extensive groundwork still needed, issuing licenses in the upcoming fiscal year as announced is highly unlikely.”

Adding to the controversy, some business groups have been accused of attempting to influence the appointment of the central bank governor to secure favorable positions for obtaining digital banking licenses.

As the sole authority responsible for licensing banks and financial institutions, NRB had incorporated digital banking into its monetary policy as far back as three years ago. In its 2022/23 monetary policy, then Governor Maha Prasad Adhikari stated that amendments to the Nepal Rastra Bank Act, 2058 and the Bank and Financial Institutions Act (BAFIA), 2073 would be pursued to support the creation of fully digital banks, along with the development of an appropriate institutional framework.

In the 2023/24 monetary policy, NRB committed to preparing a concept paper for the establishment of a digital bank. According to the central bank’s progress report, draft amendments to both the NRB Act and BAFIA have been prepared, but the concept paper has yet to be published.

Meanwhile, the BAFIA Amendment Bill, currently under discussion in the Federal Parliament, includes explicit provisions for digital banks. The bill proposes that such banks be permitted to accept deposits, provide loans, and conduct standard banking operations—under the supervision of NRB and in compliance with relevant legislation, articles of incorporation, and operational guidelines.

What Is a Neobank?

A neobank is a financial institution that operates exclusively online, without any brick-and-mortar branches or in-person customer service. While not a formal legal term, neobank is widely used in the global fintech industry. According to the Cambridge Dictionary, it refers to “a type of bank that provides only online banking services and has no physical branches.”

Manoj Ghimire, Chairperson of fintech firm Rara Labs, explains that neobanks often use AI-driven systems to deliver services, reducing or eliminating human involvement. He adds that while traditional banks offering tech-based services may be labeled as digital banks, neobanks are typically digital-native institutions built entirely around online operations.

“In Nepal, some banks and mobile wallet companies have already begun offering neo-banking services in partnership with fintech firms,” Ghimire noted.