Knowledge Management (KM) is the process that deals with obtaining, processing, storing, disseminating and applying of information and knowledge within an organization to support and enhance its business performance and employee satisfaction. Financial institutions are realizing knowledge as a crucial resource in organization and should be managed judiciously. Despite the claims for positive relation between KM process and employee satisfaction in banking sector, few researchers have actually proved it. Therefore, the main objective of this study was to measure the effect of knowledge management practices on employee satisfaction of banking sector in Nepal. In this study, a sample of 385 respondents was selected randomly from four different types of financial institutions of Kathmandu, Nepal. Statistical analysis was done to draw the conclusion. The results clearly showed that components of KM process (KM obtaining, KM organizing & KM applying) had positive relation with the organizational performance measured in terms of employee satisfaction.