Governor Paudel to announce his first Monetary Policy today: focus on liberal lending, foreign bank entry

KATHMANDU: Nepal Rastra Bank (NRB) is set to unveil the monetary policy for the fiscal year 2082/83 (2025/26) today, Friday. According to high-level sources at NRB, Governor Dr. Bishwanath Paudel has called a board meeting to approve and announce the monetary policy this afternoon.

This marks Governor Paudel’s first monetary policy since taking office, and insiders describe it as a market-friendly, reform-oriented, and liberal strategy designed to stimulate credit demand, streamline lending processes, and open the financial sector to foreign investment.

Liberal Lending Procedures to Boost Market Demand
In a bid to address weak credit demand despite excess liquidity and low interest rates, the NRB will liberalize lending criteria through the new policy. The central bank aims to simplify credit disbursement procedures to revitalize the sluggish banking sector and stimulate private investment.

Additionally, working capital loan guidelines introduced by previous governors will be overhauled. Banks will receive more autonomy to issue credit based on analytical assessment, ensuring that credit misuse is prevented without deterring genuine borrowers.

Foreign Banks to Get Access to Retail Banking
In a historic shift, the monetary policy will open Nepal’s market to foreign joint venture banks beyond wholesale banking. For the first time, retail banking licenses will be issued to qualified foreign banks. Chinese banks have reportedly been seeking retail banking licenses in Nepal for over a decade.

Since 2067 BS (2010 AD), NRB had suspended the issuance of new commercial banking licenses. The new policy will change that, allowing new domestic and foreign entrants under specified conditions.

Bank Classification Based on Risk, Governance, and Capital
The upcoming monetary policy will classify commercial banks based on risk, capital adequacy, non-performing loans (NPLs), reputation, governance, and board qualifications. Despite all 20 commercial banks operating under the same category, their financial discipline and management practices vary significantly.

Based on the new classification system, top-performing banks will be eligible for self-regulation, incentivizing better corporate governance and compliance standards in Nepal’s banking industry.

Governor’s Priority: Timely Execution of Budget and Policy
The monetary policy, typically issued in mid-July, is being released two weeks earlier this year to align with the implementation of the government’s budget starting from Shrawan 1 (July 16, 2025). Governor Paudel conducted hasty consultations with former governors and former executive directors of the research department on Wednesday to finalize the policy document.

On Thursday, he also held a management committee meeting and discussed inputs submitted informally by the Banking Reform Suggestion Task Force, which is expected to submit its final report by Sunday. Many of their recommendations will be reflected in the policy.

New Proposals: Neo Banks and Asset Management Companies
Governor Paudel will use the policy announcement to formally propose the establishment of Neo Banks and Asset Management Companies (AMCs) to manage non-banking assets. These proposals align with declarations made by Finance Minister Bishnu Paudel in the national budget.

AMCs will aim to professionalize the management of bad assets and improve recovery mechanisms, while Neo Banks will help digitize banking services and promote financial inclusion.

Interest Rate Simplification and Priority Sector Lending Reforms
The policy will simplify the interest rate structure, which currently features multiple caps and floors, causing inefficiencies in the credit market. A review of priority sector lending will also be undertaken, based on a study of its effectiveness in promoting inclusive growth.

Additionally, the monetary policy will touch upon reforms in merger and acquisition (M&A) practices, drawing lessons from past experiences to guide future consolidations.

Special Focus on Small Borrowers and Financial Inclusion
In a bid to ensure that monetary policy benefits all segments of the economy, provisions for small borrowers and customers will be included. The NRB will also ensure improved access to finance for SMEs, cooperatives, and rural sectors through appropriate regulatory flexibility.

The NRB’s board meeting is currently underway. Once the monetary policy draft is approved, Governor Paudel will publicly announce it at a press conference later today.

According to sources, this first policy by Governor Paudel is strategically crafted to appeal to the market, improve FDI attractiveness, modernize Nepal’s banking framework, and enhance the credibility of NRB in managing the country’s economic stability.