KATHMANDU, Dec 24: Amid persistent problems in the country’s economy and banking sector, a comprehensive blueprint has been prepared to reform the banking system and revive economic activity. The Banking Sector Reform Recommendation Task Force submitted its reform roadmap to Nepal Rastra Bank (NRB) on Tuesday.
The task force has outlined measures to energize the economy, reform the banking sector, and define Nepal’s role in exiting the grey list.
The NRB Board of Directors had formed the task force under the coordination of former Executive Director Dr Rewat Bahadur Karki. The report was submitted to NRB Governor Dr Biswo Nath Poudel on Tuesday. Former Nepal Bankers’ Association President Bhuwan Kumar Dahal is a member of the task force, while NRB Executive Director Guru Prasad Paudel serves as member secretary.
The task force stressed the banking sector’s role in revitalizing the sluggish economy, calling for policy flexibility, credit expansion, depositor protection, and improved risk management.
Its major recommendations include:
• Review of blacklisting regulations
• Policy flexibility while safeguarding depositor interests
Lending slows as banks focus on recovery of loans at fiscal yea...
• Operation of concessional subsidy programs
• Business revival loans
• Loan restructuring and rescheduling
• Easy loans of up to Rs 500,000 in rural areas and Rs 1 million in urban areas
• Expansion of microfinance and entrepreneurial loan limits
• Youth and startup promotion credit policies
• Effective coordination mechanisms for banking reforms
• A stronger and more proactive role to exit the grey list
The report also calls for reforms in blacklisting provisions and the establishment of effective cooperation systems for banking sector reforms. It highlights key agendas related to banking policy, regulation, credit flow, rural finance, merger management, grey-list challenges, and capital market development, aiming to make the banking system liberal, prudent, risk-based, customer-friendly, and growth-oriented.
The task force recommended freeing banking regulation from unnecessary micromanagement and developing a risk-based and effective supervision system. It emphasized healthy regulation and customer-friendly banking services, suggesting the classification of banks and financial institutions based on defined standards. It also suggested minimizing conflicts of interest in bank board formation, adopting a system where NRB is only informed about branch openings or closures, and reviewing directed lending policies to prioritize education, health, transport, and green sectors.
Recognizing the distinct nature of microfinance institutions, the task force proposed a separate regulatory body for them and highlighted the need for separate regulators for non-banking institutions such as the Employees Provident Fund, Citizen Investment Trust, and Social Security Fund.
To attract foreign investment, the task force recommended managing 100 percent foreign exchange risk for foreign investors for the next two years, liberalizing foreign exchange policies, aligning loan classification and loss provisioning with international practices, and strengthening information technology and cybersecurity.
The blueprint was prepared at a time when Nepal’s banking sector faces high liquidity, insufficient credit investment, non-performing loans exceeding 5 percent—more than double last year’s level—and rapid growth of non-banking assets. Although the overall economic situation is gradually improving, weak investment sentiment and sluggish demand and consumption have prevented a full economic recovery.
The task force suggested immediate, short-term, and medium-term measures to initiate structural reforms in the banking sector and stimulate economic activity. It called for policy flexibility without compromising depositor interests, immediate utilization of pending government subsidies through concessional lending, business revival loans, flexible collateral-backed lending policies, and loan restructuring and rescheduling.
To expand rural–urban credit access, it recommended easy loans of up to Rs 500,000 in rural areas and Rs 1 million in urban areas. It also proposed raising microfinance and entrepreneurial loan limits and introducing special credit policies for IT, startups, and innovation under youth and startup promotion programs.
The task force proposed a “NRB in Rural Areas” program to strengthen the rural economy, suggesting that the governor personally visit rural regions to assess local economic potential, credit demand, and banking services. It also recommended forming “financial mentor” teams involving successful entrepreneurs, NRN members, and bankers in coordination with local governments, identifying value-added agriculture and industries, and conducting annual financial literacy and entrepreneurship programs at the local level.
The report emphasized that NRB must play a stronger and more active role in removing Nepal from the grey list, citing its responsibility in anti-money laundering and payment systems. It recommended preparing a time-bound action plan to exit the grey list within two years and implementing necessary corrective measures swiftly.
To address conflicts of interest in the capital market, the task force suggested alternative arrangements to recall central bank representatives from the NEPSE board. It also recommended prioritizing broker-led margin lending, setting sectoral limits on share loans, and allowing banks to manage the remaining arrangements independently.
Additional recommendations include facilitating NRN participation in the secondary market by easing tax and foreign exchange policies, adopting the Basel framework for regulatory capital calculation on equity investments, completing the conversion of promoter shares into ordinary shares within 10 years, and supporting bond market development, including green bonds.
