Kathmandu: Nepal Rastra Bank, the central bank of Nepal, has unveiled the report submitted by the Banking Sector Reforms Recommendation Taskforce. The taskforce was formed by the central bank under the leadership of Dr. Rewat Bahadur Karki to recommend comprehensive reforms to address critical issues in the banking sector caused by a slack economy, high liquidity, increasing passive loans, and non-banking properties.
According to National News Agency Nepal, the taskforce has proposed several reform agendas, covering areas such as banking policy, regulation, credit flow, rural economy, mergers, the grey list, and the stock market. It concluded that structural reforms are necessary given the economy’s incomplete functionality, weak investment flow, and liquidity stagnation.
The report emphasizes the importance of effective supervision and oversight based on risk by advocating for a liberal yet prudential banking policy regulation. It recommends executing various directives by classifying banks and financial institutions into three categories based on standards.
Additionally, the report suggests reviewing the regulated lending policy, increasing credit flow to sectors like education, health, transport, and green initiatives, and developing an integrated mechanism to compare banking service costs and interests. It also highlights the need for a separate regulatory body for microfinance institutions due to their unique nature.
The report underscores the necessity of a distinct regulator for non-banking institutions such as the Employees’ Provident Fund, Citizen Investment Trust, and Social Security Fund, given their rising investment flows. The taskforce advises restructuring loans, initiating a subsidiary loan program, and arranging additional loans to revitalize small-scale entrepreneurship, prioritizing depositors’ interests.
Other recommendations include implementing the ‘Rastra Bank in Rural Area’ initiative, amending credit demand policies after assessing possibilities and challenges, identifying potential industries, promoting mergers and acquisitions, and enhancing the central bank’s role in addressing the Grey List status.
Furthermore, the report suggests recalling the central bank representative from NEPSE, adopting global best practices in margin lending, facilitating the NRNA in the secondary market, and coordinating with the Securities Board of Nepal for the development of the bond market, including green bonds.