Rising volume of non-performing loans (NPLs) in priority sectors such as agriculture and small and medium-sized enterprises (SMEs) is causing stress in banks and financial institutions (BFIs, said Nepal Rastra Bank (NRB) Governor Dr. Biswonath Poudel, adding that designing monetary policies solely to benefit large-scale industrialists and businesses would not solve the issue.
Speaking at a pre-monetary policy discussion programme organised by the Society of Economic Journalists–Nepal (SEJON) in Kathmandu on Sunday, July 6, Poudel said the upcoming monetary policy would prioritise agriculture and SMEs while taking a balanced approach across all sectors.
“NPLs have increased in the very sectors—agriculture and SMEs—where we want to expand credit,” said Poudel. “Instability affects all sectors, so our approach must uplift everyone. We must avoid creating a divide between wealthy groups and small farmers or entrepreneurs. Everyone should have access to credit.”
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However, he noted that the central bank alone cannot resolve the broader economic and financial challenges. Fiscal policy must take the lead by encouraging investment in major infrastructure projects such as energy, roads, and bridges, he added.
Rajesh Upadhyay, Senior Vice President of the Confederation of Banks and Financial Institutions Nepal (CBFIN), said that credit growth has remained weak despite declining interest rates, mainly due to reduced disposable income. “Our expenses are rising, but income hasn't kept pace. The outmigration of youth has also reduced consumption in the domestic market,” he said.
He argued that working capital loan guidelines came too late, and that current laws governing loan recovery are overly strict and should be eased. “Bad loans have now become more than a banking problem—they’re a social issue,” he said. Delays in payments to contractors and issues in the cooperative sector have also contributed to the rise in bad loans, he added.
Upadhyay suggested that asset management companies could help resolve NPL issues. With excess liquidity in the system, he said, the upcoming monetary policy should prioritise liquidity management.
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Stating that banks have parked Rs 520 billion with Nepal Rastra Bank, Governor Poudel stressed fiscal policy must take the lead in identifying investment avenues beyond energy.
Nepal Bankers’ Association President Santosh Koirala echoed the call for a strong and independent asset management company. “Currently, banks are managing their own bad assets. But they cannot tackle the issue alone. We need a dedicated institution to manage distressed assets,” he said.
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Speakers also emphasised the need for better coordination between monetary and fiscal policies.
Economist Dr. Menuka Karki said monetary policy has failed to align with fiscal policy, making the economy overly dependent on the central bank for stability. She argued that credit expansion in the private sector should be guided by monetary policy rather than fiscal measures. Karki also recommended promoting business-based collateral over land-based mortgages. The halt on land plotting, she noted, has hit the real estate sector and, in turn, restricted credit expansion.
Economist Dr. Sameer Khatiwada underscored the importance of ensuring central bank autonomy. He said monetary policy should focus on managing interest rates, inflation, and foreign exchange, while fiscal policy should prioritise formalising the informal economy.
Former FNCCI President Shekhar Golchha stressed that the upcoming monetary policy should aim to boost private sector confidence.
CBFIN President Upendra Prasad Paudel added that problems in the banking sector can trigger broader economic challenges. He called for joint efforts by banks, the private sector, the NRB, and the government to resolve current issues.
(With inputs from RSS)
