2.3 Role and Function of Central Bank

2.3.1 Regulation, Inspection and Supervision of Banks and Financial InstitutionsNRB supervises through on-site inspection and off-site monitoring of returns. It enforces capital adequacy, asset classification, and provisioning standards aligned with international norms. Supervisory responses range from instructions, to penalties, to management takeover in the last resort.2.3.2 Role in Formulating Monetary PolicyThe Act makes NRB the monetary authority. It formulates and publishes the monetary policy each fiscal year, in coordination with the government's budget and the foreign exchange policy. Instruments include policy rates, reserve requirements, and open market operations.2.3.3 Formulating Rules for Regulating Foreign Exchange and ReserveNRB regulates foreign exchange under the Foreign Exchange (Regulation) Act, 2019 (1962) and its own regulations and directives. It manages the country's foreign exchange reserves, fixes exchange-rate arrangements, licenses money changers, and controls capital transactions within the law's limits.2.3.4 Monetary Functions: Note Issue and Open Market Operations• Issue of bank notes and coins: NRB has the sole right to issue bank notes; coins and small- denomination notes are issued under the government-NRB division traditionally applied. The note issue is backed by the Act's fiduciary and reserve framework.• Open market operations: purchase and sale of government securities and its own bonds to absorb or inject liquidity — the modern lever of monetary management.2.3.5 Banker, Adviser and Financial Agent for GovernmentNRB holds government accounts, issues treasury bills,…