Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: The government has approved a bill to amend the Nepal Rastra Bank (NRB) Act, paving the way for one of the most significant overhauls of Nepal’s central banking framework in decades. The Cabinet, in a meeting held earlier this week, approved the proposal to register the amendment bill in Parliament, introducing sweeping reforms aimed at strengthening central bank autonomy, modernizing financial regulation, and adapting Nepal’s banking architecture to the digital economy.
The proposed amendment seeks to redefine the institutional, regulatory, and technological mandate of Nepal’s central bank amid rising digital financial transactions, concerns over monetary governance, and growing calls for greater independence of monetary authorities.
The draft legislation was initially prepared by former Finance Minister Rameshwor Khanal under the election government led by former Chief Justice Sushila Karki, during which stakeholder feedback was invited. Based on recommendations received during consultations, the government has now finalized and moved forward with the revised proposal.
The amendment comes at a politically sensitive time, particularly after controversies surrounding the appointment of the NRB governor in recent years, prompting the government to revisit eligibility rules, governance structures, and oversight mechanisms at the central bank.
At its core, the amendment seeks to modernize Nepal Rastra Bank to match contemporary financial realities, especially digital banking, digital currencies, and technology-driven supervision.
The government says the reform aims to make the central bank more autonomous, transparent, and technologically capable while strengthening monetary stability and financial system resilience.
The amendment identifies eight major objectives:
The bill is expected to significantly reshape the country’s monetary and financial regulatory landscape if passed by Parliament.
One of the most politically and institutionally significant provisions in the amendment is the proposal to remove commercial bank chief executives from eligibility for the post of governor.
Existing provisions allow chief executive officers of commercial banks to qualify for the governor’s position based on professional experience. However, the amendment bill proposes eliminating this criterion.
The proposal appears designed to reduce potential conflicts of interest and strengthen institutional neutrality at the central bank, especially amid criticism that excessive proximity between commercial banking leadership and monetary authorities could undermine regulatory independence.
The move could substantially narrow the pool of future governor candidates and shift preference toward economists, policymakers, academics, former regulators, and public finance experts.
The amendment also proposes procedural changes related to investigations into the governor. Instead of a Supreme Court justice, any investigation committee formed to probe the governor would now include the Chief Judge of a High Court.
Additionally, foreign visits by the governor would require mandatory government approval.
In what could become a landmark shift in Nepal’s financial ecosystem, the proposed amendment formally introduces legal definitions for “digital currency,” “digital bank,” and “financial holding company” for the first time.
Currently, Nepal’s laws recognize only physical notes and coins as currency. Under the amendment, digitally issued currency by Nepal Rastra Bank would also be legally recognized, potentially opening the door for Nepal’s future central bank digital currency (CBDC).
NRB has previously explored digital currency initiatives, but progress remained limited due to the absence of clear legal foundations. The amendment seeks to bridge this gap.
The bill would also authorize Nepal Rastra Bank to issue its own digital currency in addition to physical cash.
Furthermore, the proposal introduces provisions allowing licensing of fully digital banks operating without physical branches, relying entirely on technology-based platforms for customer services.
The amendment reflects a broader global banking trend in which fintech integration, branchless banking, and digital financial ecosystems are rapidly reshaping the financial services industry.
The bill proposes a major expansion in the definition of financial institutions regulated by Nepal Rastra Bank.
Beyond traditional banks and financial institutions, the revised framework would now include:
This move is expected to bring Nepal’s growing fintech ecosystem under a more comprehensive regulatory umbrella.
The concept of financial holding companies has been introduced specifically to regulate subsidiaries owned by commercial banks and financial institutions, addressing emerging complexities in cross-sector financial ownership structures.
The amendment also revises the core objectives of Nepal Rastra Bank, giving greater priority to price stability and inflation control.
Under the proposed framework, maintaining price stability would become the primary objective of the central bank. Financial system stability, external sector management, and support for government economic policy would follow in priority.
This marks a shift toward internationally recognized central banking norms, where inflation targeting and monetary discipline are considered primary responsibilities.
The amendment further proposes granting Nepal Rastra Bank greater operational flexibility to perform its duties independently and according to global standards.
One of the most consequential provisions concerns the removal of government authority to directly instruct Nepal Rastra Bank.
The amendment proposes scrapping Section 106(c) of the existing Act, which currently allows the Government of Nepal to issue directives to the central bank.
If approved, the reform would significantly reduce political interference in monetary governance and reinforce NRB’s institutional independence.
The government argues that removing this provision would allow the central bank to carry out its mandate independently, based on international standards and best practices.
Economists have long argued that strong central bank autonomy is essential for maintaining monetary credibility, financial discipline, and investor confidence.
The bill also seeks to clarify Nepal Rastra Bank’s role as the “lender of last resort” during systemic banking crises.
Under the proposal, NRB would be authorized to provide emergency liquidity support for up to 180 days if a bank faces severe liquidity stress capable of threatening the broader financial system.
The measure is intended to strengthen financial stability safeguards and prevent contagion risks during banking distress.
The amendment proposes limiting Nepal Rastra Bank’s involvement in quasi-fiscal activities, meaning developmental or government-style spending functions.
NRB would also be prohibited from acting as a guarantor for government agency loans.
However, the bill opens a pathway for the central bank to invest up to 10 percent in asset management companies, particularly for managing non-performing loans (NPLs).
Gold trading and investment would also formally become part of the central bank’s operational mandate.
The proposed amendment seeks to restructure Nepal Rastra Bank’s board of directors.
The board would expand from seven members to nine members, while the number of independent directors would increase from three to five.
The government argues this would strengthen governance quality, independence, and expertise within the central bank’s leadership.
At the same time, restrictions have been proposed to reduce political influence in the board.
Except for the Finance Secretary, government officials and employees of public institutions would be barred from becoming board members.
Former NRB employees would also face a three-year cooling-off period before becoming directors, excluding the governor and deputy governors.
The amendment introduces several specialized financial reserve mechanisms to improve capital and fund management.
These include:
A fund for maintaining capital and financial sustainability.
Designed to manage gains and losses arising from fluctuations in foreign currency reserves and gold prices.
A fund worth up to five percent of total monetary liabilities to support financial access and financial stability initiatives.
A reserve of up to two percent of monetary liabilities for special strategic purposes.
In a major reform with implications for Nepal’s troubled cooperative sector, the amendment proposes expanding the scope of the Credit Information Center to include cooperative institutions.
This means cooperative loan information could now be integrated into national credit databases.
The proposal aims to improve borrower transparency, reduce multiple borrowing risks, and address weak financial discipline in the cooperative sector, which has faced repeated scandals and governance failures in recent years.
The amendment also introduces a credit scoring system, allowing borrowers to be assessed through standardized credit ratings.
Financial analysts believe this could significantly improve lending discipline, reduce loan defaults, and enhance risk-based lending practices.
The amendment introduces a detailed bank resolution framework to systematically manage troubled financial institutions.
Special administrative groups could be formed to take over distressed institutions.
If a bank nears collapse, authorities would also be able to establish a “bridge institution” to temporarily transfer deposits and safe assets, protecting depositors and preventing panic in the financial system.
Such mechanisms are commonly used internationally to handle failing banks while minimizing systemic disruption.
The amendment also updates legal language to align with Nepal’s federal governance model.
References solely to the “Government of Nepal” would be revised to include coordination with provincial and local governments where necessary.
The government believes the amendment will help Nepal achieve broader financial inclusion, technological modernization, and financial stability goals while supporting the country’s long-term sustainable development agenda.
If passed, the legislation could mark a transformational shift in Nepal’s monetary governance, redefining the role of Nepal Rastra Bank as a more autonomous, digitally capable, and internationally aligned central bank.
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