Nepal unveils major banking reforms: Digital surveillance, Credit growth, and anti-corruption drive intensify

KATHMANDU: Nepal’s banking and financial sector is poised for a structural transformation following the government’s newly unveiled 100-point governance reform agenda, with sweeping measures ranging from corruption control and digital financial monitoring to credit expansion and institutional transparency.

Experts say the reform blueprint—particularly provisions linked to the Nepal Rastra Bank—could significantly modernize Nepal’s financial ecosystem, improve regulatory efficiency, and enhance investor confidence in the country’s banking system.

Dormant Funds to Be Mobilized into State Treasury

One of the most impactful provisions involves collecting details of dormant bank accounts inactive for 10 years or more. The government plans to transfer unclaimed deposits into the state treasury after completing legal procedures, targeting implementation within 90 days.

Currently, under the Bank and Financial Institutions Act (BAFIA) 2073, such deposits are moved to the Banking Development Fund only after 20 years. According to NRB spokesperson Guru Prasad Paudel, reducing this threshold to 10 years may require legal amendments and safeguards to allow rightful claimants a final opportunity to recover funds.

Integrated Digital Financial Asset Registry

In a major anti-corruption step, the government has tasked NRB with developing a unified digital asset registry within 100 days. This system will integrate bank accounts, digital wallets, share investments, and other financial instruments into a centralized database.

The platform will deploy risk-based signaling mechanisms to automatically flag suspicious transactions, enabling coordinated investigations. NRB already operates financial surveillance through its Financial Intelligence Unit (FIU), but this reform aims to create a more systemic and integrated monitoring architecture.

Credit Expansion Targeted at MSMEs, Agriculture, and IT

To stimulate economic growth, the central bank has been directed to reduce risk weights on lending to priority sectors such as small and medium enterprises (MSMEs), agriculture, and information technology within 30 days.

Officials indicate that such adjustments are operationally feasible and align with NRB’s existing directed lending policies. Lower risk weights would effectively free up capital for banks, enabling increased credit flow to productive sectors.

Digital Governance and Financial System Integration

The reform agenda strongly emphasizes digital governance, data governance, and expanded use of the national identity system. Authorities believe integrating services such as citizenship, passports, and national ID into a unified digital framework will streamline financial services and reduce bureaucratic friction.

NRB officials note that mandatory use of national ID for bank account opening has already begun, and further integration could significantly improve compliance, traceability, and service delivery.

Institutional Transparency and Performance-Based Systems

The reforms also include performance-based evaluation mechanisms for employees, requiring clear job descriptions, measurable KPIs, and accountability-driven assessments. Experts believe this could strengthen governance within financial institutions, including the central bank.

Additionally, the government plans to introduce digital HR profiles for employees, automating lifecycle management from recruitment to retirement. NRB, which already operates a Human Resource Information System (HRIS), may align its system with broader government frameworks.

Private Sector Confidence and Banking Stability

The proposed “Private Sector Protection Strategy” is expected to create a safer operating environment for businesses, indirectly strengthening the banking sector by reducing systemic risk and improving borrower confidence.

National Commercial Bank CEO Devendra Raman Khanal described the reform agenda as “positive,” emphasizing its potential to enhance service delivery, resource utilization, and institutional transparency. However, he stressed the need for clear implementation frameworks and procedural clarity.

Liquidity Abundance but Demand Constraints Persist

Despite strong liquidity indicators—estimated at NPR 10 trillion within the banking system and foreign exchange reserves exceeding NPR 3.2 trillion—bankers highlight weak demand as the primary constraint.

Banker Analraj Bhattarai noted that while financial resources are ample across institutions like the Social Security Fund and Employee Provident Fund, low consumer demand, declining job creation, and potential remittance slowdown are limiting credit uptake.

He emphasized that policy reform alone is insufficient without stimulating economic activity, adding: “The system has liquidity, but utilization depends on confidence and demand.”

Structural Adjustments and Policy Execution Challenges

Experts also point to the need for structural reforms, including easing provisioning norms—currently stricter than in India—and reducing capital constraints through risk-weight adjustments.

While stakeholders agree that policy formulation is relatively straightforward, execution remains the critical challenge. Effective coordination, legal amendments, and institutional readiness will determine whether the ambitious reform agenda delivers tangible outcomes.

NRB has expressed commitment to supporting the government’s program, noting that enhanced digital infrastructure and governance reforms could transition Nepal’s financial system toward a more “paperless, faceless, and cashless” model—aligned with global fintech trends and digital economy standards.