With non-performing loans (NPLs) crossing Rs 289.56 billion, Nepal Rastra Bank (NRB) is poised to take decisive action—this time focusing on small and medium enterprises (SMEs) and the agriculture sector, long seen as the backbone of Nepal’s economy but now emerging as a hotspot for bad debt.
At a recent pre-monetary policy forum organized by SEJON, Governor Biswo Nath Poudel confirmed that the upcoming policy package will prioritize recovering bad loans from these sectors, warning that support skewed only toward big business won’t fix the economy’s underlying structural issues.
NPLs have climbed from 3.98% to 5.24% of the loan portfolio within a year—up by a staggering Rs 95.8 billion. Some banks, including Himalayan Bank, Kumari Bank, and Nepal Investment Mega Bank, now report NPLs exceeding 6%, ringing alarm bells at the central bank.
Worryingly, non-banking assets (NBAs) of BFIs have also ballooned by 63.45%, from Rs 27.6 billion to Rs 45.11 billion, indicating rising loan defaults being converted into seized collateral — a symptom of deeper credit stress.
Despite base interest rates dipping to a 3-year low (avg. 6.2%), banks are not lending more, choosing instead to park surplus liquidity with the NRB’s short-term tools. According to Santosh Koirala, President of the Nepal Bankers’ Association, loan recovery from rural areas is now below 50%, further tightening the noose on banks.
Rajesh Upadhyay, VP of the Confederation of Banks and Financial Institutions Nepal, framed the crisis as a national issue, not just a banking one, warning of social and economic ripple effects.
As NRB prepares its next monetary policy, all eyes are on how it will balance economic stimulus with debt discipline — and whether it can pull SMEs and agri borrowers back from the brink.
