GROUNDWATER EXTRACTION WITH newer technologies and its use in Nepal are very recent as compared to some other South Asian countries. The Agriculture Development Bank/Nepal (ADB/N) has been intimately involved in groundwater development for the past two decades. It is very probable that, in the future, the functions of the Bank will be limited only to lending activities without the technical support. Were it to be so, the Bank will need to find avenues for filling in the newly created vacuum if irrigation development is to be fully realized. Therefore, this paper assesses the institutional capacity and the adequacy of irrigation support services to shallow tube wells (STWs) by the ADB/N by analyzing several systems supported by the Bank. The economic performance of the selected STWs is also presented. Suggestions are made for enhancing the Bank's institutional capacity regardless of whether it retains technical support as one of its functions. The paper also addresses the issue of subsidy and its impact on groundwater development. It concludes with issues that confront STW development and sustainability in Nepal, in view of the positive contribution that ADB/N can make toward the goals of irrigation development in the country.