KATHMANDU, July 1: As Nepal Rastra Bank (NRB) is busy preparing monetary policy for the upcoming fiscal year 2026/27, stakeholders and experts have urged the central bank to focus more on financial sector stability, credit classification and non-banking asset management to boost private sector confidence.
Speaking at a recent program organized by the Society of Economic Journalists (SEJON), banking sector expert Anal Raj Bhattarai said that the biggest challenge facing the current economy is the lack of demand for credit from the private sector despite the banking system having sufficient liquidity, low interest rates and the ability to disburse loans. “The upcoming monetary policy should focus on solving structural problems in the banking sector rather than reducing or increasing interest rates,” he said.
For the past few years, Nepal’s banking sector has been piling up with excessive liquidity due to poor lending and surging deposit collection despite reduction in interest rates by notable rates. On the other hand, banks have been witnessing a collection of soaring non-banking assets with a growing number of loan defaulters.
Revised interest rate corridor system introduced
Prachanda Bahadur Shrestha, president of the Confederation of Banks and Financial Institutions Nepal (CBFIN), said the ability of even strong and capable businesses to repay loans has been affected due to the drying up of cash flow in various economic sectors. He stressed that the upcoming monetary policy should address the real problems facing the banking sector and maintain a balance between financial stability and economic revival.
The experts expressed their view that the NRB should adopt practical and risk-based flexibility in credit classification, provisioning rules and management of non-banking assets. Citing the example of other countries in South Asia adopting similar flexible policies during economic crises and providing relief to the financial system, they urged the central bank to address the issues through the Monetary Policy 2026/27.
Santosh Koirala, president of Nepal Bankers’ Association underlined the need to review the non-performing asset (NPA) classification and provisioning system. He said that the current system of provisioning 5 percent within a month, 15 percent within three months, 50 percent within six months and 100 percent within a year is not appropriate for both banks and borrowers.
Anand Bagaria, executive director of Nimbus, a trading and manufacturing enterprise, said the main problem now is the lack of policy stability and business confidence, rather than interest rates. He said that entrepreneurs have had the experience of investing at 13-14 percent interest rates, and that the uncertainty of policy changes is more important than 6 or 7 percent interest rates. “The confidence among entrepreneurs has been weak because policy changes increase investment risks in the middle of project operations.”
Deputy Governor of NRB, Kiran Pandit, in response, said that although the upcoming monetary policy will support the government’s goal of high economic growth, it will equally address the challenge of maintaining economic stability. Pandit added that issues such as fintech, open banking, monitoring of digital transactions and technology-related risk management have now become important agendas of monetary policy and regulatory frameworks.
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