Banking News – The government has appointed economist Dr. Bishwanath Paudel as the 18th Governor of Nepal Rastra Bank. His appointment was decided during Tuesday’s cabinet meeting at Baluwatar. The Governor Recommendation Committee had earlier shortlisted Dr. Paudel, acting governor Dr. Neelam Dhungana, and former secretary Dinesh Bhattarai for the post.
His appointment followed a prior agreement between Nepali Congress President Sher Bahadur Deuba and Prime Minister and UML Chairman KP Sharma Oli. As Dr. Paudel assumes office, he faces a host of significant challenges. Here are five of the most pressing:
- Rising Non-Performing Loans (NPLs) Banks and financial institutions are still struggling to recover loans, and the situation is worsening. As defaults increase, so do non-performing loans (NPLs), forcing institutions to write off more bad debt and acquire non-banking assets. Due to a sluggish economy, loan demand remains low, and banks are focusing on recovering old loans rather than issuing new ones.
As of the end of March in the current fiscal year, the total non-banking assets of banks and financial institutions reached NPR 44.8 billion—66% higher than the same period last year. This growing volume of bad loans presents a major challenge for Dr. Paudel.
If not effectively managed, bad debt can destabilize financial institutions, erode investor confidence, and trigger an economic crisis. The central bank must take the lead in regulating institutions, managing liquidity, and curbing NPLs through clear and effective policies.
- Stalled Investment Environment in Banking Despite excess liquidity, investment is not happening. Banks are holding large volumes of idle capital due to a lack of viable investment opportunities. The central bank has been absorbing this liquidity, yet lending hasn’t picked up.
The credit-to-deposit (CD) ratio of commercial banks has dropped to 63.86%, with many banks hovering at the minimum threshold. The economy has been stagnant for over three years. Although interest rates have fallen to single digits, this hasn’t translated into increased loans to productive sectors. As a result, over NPR 81.28 billion in investable capital sits unused.
Creating a conducive investment climate is now one of Governor Paudel’s critical tasks. Nepal Rastra Bank needs to implement investment-friendly monetary policies, manage interest rates and liquidity, promote digital banking, and attract foreign investment. Doing so can boost private sector participation, generate employment, increase productivity, and stimulate the broader economy.
- Lack of Business-Friendly Policies Entrepreneurs are growing increasingly frustrated, with some leaving the country due to the lack of supportive business policies. Small businesses are especially affected. There is an urgent need for inclusive, business-friendly frameworks.
Many industries in Nepal are in crisis, largely due to inadequate government support. As a key policymaker, the central bank must help revitalize the business sector. Measures like concessional loans, stable interest rates, better liquidity management, improved digital banking, and reforms in foreign exchange policy can make Nepal more business-friendly.
Supporting businesses would encourage investment, create jobs, and strengthen the national economy. Governor Paudel must work to ensure that the central bank introduces policies that cater to business needs and restore economic confidence.
- Providing Economic Leadership The central bank plays a leading role in shaping and managing the national economy. It maintains records of all government financial transactions and serves as the government’s key economic advisor.
The Governor must provide input on budget formulation and collaborate with the government on economic surveys. Nepal Rastra Bank also advises the government on external borrowing—evaluating terms, disbursements, and repayments.
As the government’s financial agent, the central bank raises funds through treasury bills and savings bonds. It also has the policy mandate to buy, sell, and manage government securities.
Given this broad scope of responsibility, Governor Paudel will need to lead national economic planning and coordination. At a time when financial institutions are discouraged, credit growth is weak, asset quality is declining, and profits are shrinking, strong leadership from the central bank is crucial.
- Developing Micro-Entrepreneurship Micro, small, and medium enterprises (MSMEs) are essential to Nepal’s economic structure, contributing significantly to job creation, production, and growth. However, the development of micro-entrepreneurship has been inadequate.
Governor Paudel must prioritize the development of this sector. The central bank plays a key role by offering financial support, policy direction, and structural reforms for MSMEs.
Amid rising economic instability, pressure to digitize financial systems, and growing regulatory demands, Dr. Paudel steps into the role at a critical time. The economy is struggling to expand, job opportunities are shrinking, and people are increasingly unable to repay loans. Many are also discouraged from saving due to low interest returns.
In this complex and uncertain economic climate, Dr. Paudel, as the 18th Governor of Nepal Rastra Bank, will have to navigate these urgent challenges and guide the country’s financial system toward stability and growth.
