Nepal Rastra Bank Fails to Meet Monetary Policy Targets

Kathmandu. It has been found that two dozen targets mentioned in the monetary policy for the fiscal year 2082/83 have not been met. The annual review of the monetary policy released by the central bank on Tuesday showed this situation.

In the monetary policy of the current fiscal year, the Rastra Bank had set various targets in a total of 74 points from point number 59 to 132. According to the current review, 24 of these provisions are either under study or only in the draft stage. Whereas all these policy decisions were to be completed within this year.

Which tasks did the Rastra Bank fail in?

Among the policies adopted by the Rastra Bank, institutional and structural reforms, digital banking and payment systems, loans, interest rates and customer protection, foreign exchange, investment and remittances, and risk management and good governance were prioritized. Among these, the annual review states that the following tasks have not been completed.

• Institutional and structural reform related provisions

1. Establishment of Asset Management Company

To properly manage the bad loans and non-banking assets of banks and financial institutions, it was announced in point number 97 of the monetary policy to establish an asset management company.

The policy was to draft the necessary act and regulations for this and submit them to the Government of Nepal. The review report states that the draft of its act and regulations is currently being prepared.

2. Improvement in Base Rate Calculation Method

In point 99 of the policy, a provision was made to improve the base rate calculation method of banks and financial institutions to make it more realistic.

The Rastra Bank has stated that the draft of the report on the review of this matter is now ready.

3. Review of Bank Classification and Scope of Work

According to point 102, a policy was adopted to conduct a detailed study to review the classification and scope of work of banks and financial institutions. It is informed that a study is currently underway on this matter.

4. Prompt Corrective Action

Point 98 of the policy had a provision to amend the regulations related to prompt corrective action. It is mentioned that the draft of the amendment to this regulation is now ready.

• Digital Banking and Payment System

5. Establishment of Neo Bank

As mentioned in the budget speech of the Government of Nepal, a policy was adopted to advance the legal and procedural arrangements for the establishment of Neo Banks, which do not have physical branches, to expand financial access.

Currently, the necessary study regarding the legal and policy arrangements for the establishment and operation of Neo Banks is underway. Also, an opinion has been submitted to the Ministry of Finance for inclusion of provisions related to digital banks in the act.

6. Public Sector Payments in Electronic System

Point 96 had a policy to facilitate the inclusion of all payments made by public entities into the electronic system. A study is also underway on this matter.

7. Direct Monitoring of Interbank Transactions

Point 68 had a policy to improve the system so that the Rastra Bank can directly monitor interbank transactions between banks in real-time, making them more organized and transparent.

The Rastra Bank has stated that the process of purchasing the interbank transaction reporting and monitoring technology is currently underway.

8. Payment System Strategy

Point 120 mentioned reviewing the existing strategy and formulating a new strategy to strengthen the payment system.

The Rastra Bank has stated that the draft of the Fintech Strategy 2026-27 to 2030-31 is now ready.

9. Strategy to Reduce Cheque Transactions

Point 42 of the mid-term review stated that a strategy would be adopted to reduce cheque transactions by further encouraging electronic payment transactions. A study is currently underway on this strategy.

• Loans, Interest Rates, and Customer Protection

10. Provisions Related to Cheque Bounce and Blacklisting

Point 83 of the monetary policy mentioned that policy facilitation would be provided in the existing system of blacklisting due to cheque dishonor, which is a matter of great interest. The Rastra Bank's review states that this matter is currently under study.

11. Loan Loss and Classification

Point 76 had a policy to study the existing loan classification and loan loss provision and review it as needed. A study is currently underway on this.

12. Microfinance Loan Criteria

Point 106 stated that the criteria for obtaining loans and the eligibility of borrowers would be reviewed to ensure that microfinance loans reach the target groups. This matter is also on the list of ongoing studies.

13. Hire Purchase Loan Provisions

Point 90 had a policy to amend the legal and procedural arrangements for approving companies that provide hire purchase loans, including fit and proper tests, interest rate calculation, and service charges. A study is also underway on this.

14. Financial Customer Protection Guidelines

Point 132 had a policy to issue financial customer protection guidelines and