Bank chairpersons push back against BAFIA changes; Central bank seeks middle ground

KATHMANDU: Amid mounting controversy over proposed amendments to the Bank and Financial Institutions Act (BAFIA), Nepal Rastra Bank (NRB) has initiated intensive discussions with top-level stakeholders in the banking sector. Following earlier consultations with CEOs, the central bank on Wednesday held a crucial meeting with board chairpersons of banks to resolve growing concerns.

The ongoing dispute primarily revolves around a provision in the draft bill that seeks to distinctly separate bankers from business owners, a clause that has caused significant unease within the banking and financial sector. Sources at NRB confirmed that Wednesday’s dialogue was focused not only on the BAFIA bill but also included discussions on the implementation of the current monetary policy and the Second Financial Sector Development Strategy (FSDS-II).

Chairpersons express concern over new BAFIA clause

Bank chairpersons reportedly expressed strong reservations about the provision that prevents business owners from holding executive positions in banks. They argued that such a measure could discourage entrepreneurship and disrupt long-standing governance practices in the sector.

According to one NRB official, “We held the discussion to better understand the concerns raised by board chairpersons regarding the monetary policy, the draft amendment to BAFIA, and how these might affect ongoing and future financial strategies.”

The official added that the meeting sought to identify a middle ground and ensure that the revised policy framework does not harm the operational efficiency of banks while keeping governance clean and robust.

Loose monetary policy and property valuation raised

In the same meeting, NRB also reviewed feedback on the central bank’s current loose monetary policy, which was introduced to revive sluggish economic activities. The policy allows banks to support liquidity in the market and encourages lending by adjusting interest rate corridors and increasing asset valuation.

The NRB official noted that the policy’s provision to uplift property valuation was a temporary, short-term measure aimed at stimulating credit growth and economic momentum.

Private sector readiness under review

NRB officials also inquired about the preparedness of both the executive management and boards of banks in effectively implementing these new financial instruments and regulatory changes. With the private banking sector already grappling with liquidity management, capital adequacy requirements, and non-performing loan ratios, the policy shifts require cautious execution.

Call for policy clarity and institutional harmony

The dual consultations held this week—first with bank CEOs and later with board chairpersons—highlight the central bank’s commitment to building consensus and clarity before forwarding the revised BAFIA bill to Parliament. Banking industry experts say these steps are crucial, as conflicting interpretations of governance roles between board members and operational heads could undermine institutional harmony.

As Nepal’s financial sector attempts to navigate a shifting policy environment, the Rastra Bank appears determined to anchor reforms in consultation and cooperation, not imposition.