The taskforce formed by Nepal Rastra Bank (NRB) to recommend reforms in Nepal’s banking sector has advised the central bank to adopt a model of reduced regulatory control and enhanced supervisory oversight over banks and financial institutions (BFIs).
Chaired by Rewat Bahadur Karki, the taskforce submitted its final report to NRB Governor Dr Bishwanath Paudel on Monday, emphasizing the need for a risk-based supervisory approach. According to sources familiar with the report, the taskforce has suggested that the central bank focus more on supervision than micro-level regulation.
"There have been growing concerns about excessive micromanagement by the central bank. In the current context, NRB should shift toward liberal yet prudent regulation," the report states. It also highlights that many existing policies are overly prescriptive and do not suit all institutions equally.
The taskforce has proposed a review of several existing provisions, including the classification of banks and financial institutions, loan categorization, lending to priority sectors, and policies related to branch expansion and closures.
In addition, the taskforce has recommended the introduction of a unique currency identification marker, or "sign," for the Nepali rupee.
The taskforce had earlier submitted an initial draft of the report on July 8. NRB has already incorporated some of the key recommendations into its monetary policy for the new fiscal year. The policy outlines plans to review the classification system for banks, lending limits in priority sectors, and policies on branch expansion and credit risk management.
The 130-page report will be made public and implemented only after formal approval by the NRB Board of Directors.
The taskforce, formed in mid-June, included former banker Bhuvan Kumar Dahal and Executive Director of NRB’s Bank and Financial Institution Regulation Department, Guru Prasad Paudel, as members.
Its mandate covered a wide range of issues, including the development of liberal yet prudent banking regulations, effective risk-based supervision, customer-friendly banking services, revitalization of economic activities, promotion of rural credit access, consolidation and acquisition of banks and related challenges, Nepal’s removal from the FATF grey list, and coordination between the central bank and the capital market.
