High-Level Commission Submits 10 Suggestions for Banking Sector Reform

The High-Level Economic Reform Suggestion Commission has submitted a report to Finance Minister Bishnu Paudel, proposing 10 key recommendations to reform the banking system. The report emphasizes developing banks as specialized institutions and increasing investment in productive sectors.

The commission noted that banks’ loans are largely concentrated in real estate and consumption, limiting economic growth. It highlighted that past internal conflict, energy crises, and labor movements restricted capital flow to productive sectors. Post-liberalization, competition from imported goods weakened local production, while excessive real estate investment inflated prices, raising production costs.

The report also pointed out that instability in the cooperative sector has impacted banking, with some borrowers taking loans from both banks and cooperatives, and others depositing bank loans in cooperatives. The reliance on collateral-based lending has excluded startups and small businesses, prompting the commission to recommend alternative systems like credit scoring.

Key Recommendations:

1. Subsidized Loans: Local governments, not the federal government, should disburse subsidized loans.

2. Bond Issuance: The government should issue infrastructure bonds, and Nepal Electricity Authority should issue energy bonds to raise funds.

3. Credit Scoring: Enhance the Credit Information Centre’s capacity to introduce personal credit scoring systems.

4. Fixed-Rate Loans: Provide 3–5-year fixed-rate loans to productive industries, small enterprises, and exporters.

5. Specialized Banks: Develop banks as specialized institutions to diversify lending across economic sectors.

6. Entrepreneurship Development: Foster entrepreneurship among youth through collaboration between banks, private sector, and government to boost loan demand.

7. Deposit Insurance: Strengthen the Deposit and Credit Guarantee Fund’s risk-bearing capacity through reinsurance and diversified investments.

8. Asset Management: Establish an asset management company to handle non-performing loans.

9. eKYC System: Implement an eKYC system based on national ID cards.

10. Financial Stability: Ensure governance aligned with international standards and revise working capital loan guidelines.

Finance Minister Paudel pledged to initiate the implementation process promptly.