As the Nepal Rastra Bank (NRB) nears completion of the draft for its monetary policy for the upcoming fiscal year, financial experts and former policymakers have emphasized the urgent need for the central bank to strengthen its supervisory role and prioritize financing for small and medium enterprises (SMEs).
Speaking before the parliamentary Finance Committee on Wednesday, former Finance Minister Prakash Sharan Mahat criticized NRB for appearing weak in its monitoring responsibilities. Mahat warned that the central bank’s focus should be on ensuring financial stability, not just imposing regulations. He attributed some of the ongoing banking challenges to excessive investment in real estate, noting that investors’ reluctance to reduce inflated property values is affecting loan recovery.
He also expressed concern over what he termed a “herd mentality” guiding monetary policy decisions. According to Mahat, NRB has swung between extremes—initially offering excessive credit with relaxed oversight, then shifting to excessively tight regulations. “This roller-coaster approach needs to end,” he said, urging for a more balanced and forward-looking policy framework.
Economist and parliamentarian Swarnim Wagle echoed these concerns, stating that the economy is currently trapped in stagnation, largely due to a liquidity trap. Despite low interest rates, banks are unable to boost credit flows. Wagle also cited unrealistic data on non-performing loans (NPLs) and poor governance across financial regulators as barriers to sustainable recovery.
Former National Planning Commission Vice-Chair Min Bahadur Shrestha pointed to low capital spending and unchecked embezzlement in cooperative institutions as major factors behind the surge in bad loans. He further criticized the preference of many entrepreneurs to seek quick profits from real estate instead of investing in productive sectors, such as agriculture or small-scale industries. Shrestha called for reducing political interference in the operations of NRB to maintain institutional integrity.
Former NRB Executive Director Nara Bahadur Thapa brought attention to the decline in SME lending, attributing it to the central bank’s past policy of encouraging bank mergers. According to Thapa, many small financial institutions that traditionally served SMEs have vanished due to consolidation, shrinking access to credit for grassroots enterprises. He stressed that short-term fixes have taken precedence over long-term structural reforms, worsening Nepal’s financial vulnerabilities.
With the draft monetary policy expected soon, stakeholders now await how the NRB will respond to these mounting calls for reform—particularly around financial inclusion, institutional governance, and targeted SME financing, all seen as crucial levers to pull Nepal out of economic stagnation.
