After a decade and a half of restricting licenses to reduce the number of banks and financial institutions (BFIs), Nepal Rastra Bank (NRB) is once again hinting at issuing licenses for registering new banks. NRB had halted issuing new licenses for BFIs, except microfinance institutions, starting fiscal year (FY) 2008/09, citing regulatory challenges due to the excessive number of institutions.

To further consolidate the sector, NRB introduced the Merger Bylaw in 2011 and the Acquisition Bylaw in 2013. In FY 2015/16, it mandated a fourfold capital increase to strengthen bank capacity and encourage mergers. Licensing for new microfinance institutions was also halted from FY 2020/21 onwards to control their rapid growth.

At its peak before the merger policy, Nepal had 220 BFIs. This number has since declined to 107 as of April 2025, including infrastructure development banks.

However, during a recent meeting of the Federal Parliament’s Finance Committee, NRB Governor Dr. Biswo Nath Poudel raised the issue of license duration, prompting speculation that NRB may reopen licensing.

“Most licenses have duration, but banks don’t. If we treat a bank as a public good, we must either set a defined term or ease entry barriers to enhance competition,” Poudel said. He also criticized the current state of credit access, noting that bank loans remain confined to a select few.

Is NRB Prepared?

Despite the governor’s remarks, NRB insiders suggest that no formal preparations are underway. One executive director clarified that no official meetings or documents within NRB have addressed license reopening, and the idea remains the governor’s personal vision.

Unofficially, Governor Poudel appears keen to improve financial inclusion and competitiveness, voicing frustration that banking resources are concentrated among elites and have not reached lower-income groups.

Since 2017, the only new license NRB issued was to the Infrastructure Development Bank. While the current fiscal year’s monetary policy included a plan to license digital banks, the process has stalled due to legal and regulatory gaps.

NRB officials believe that if licensing is reopened, it may prioritize specialized banks. One executive director indicated that the upcoming monetary policy might include a study on the licensing framework.

Expert Express Mixed Views

Meanwhile, experts remain divided on this matter. Former Governor Deependra Bahadur Kshetry said that reopening licenses now is unnecessary and creates doubt. “Existing banks aren’t fully utilizing their capacity. Reopening licenses could reverse the progress made through mergers,” he warned.

Former NRB Governor Dr Chiranjibi Nepal urged a cautious, research-based approach: “Licensing banks isn’t like starting a local project; it has implications for international stakeholders too.”

In contrast, economist and former NRB Executive Director Dr Nara Bahadur Thapa supported issuing new licenses to promote competition. During the Finance Committee’s discussion on monetary policy, he argued that restricting licenses since 2008 has created monopolistic control, which new institutions could help break.

Former Vice Chair of the National Planning Commission Min Bahadur Shrestha recommended issuing licenses for banks with specific, underserved sectoral mandates. “We don’t need more of the same kind of banks. We need specialized ones that fill gaps in service,” he said.