Banking Sector Reform Task Force Recommendations to Provide a Roadmap for Structural Changes That Could Revitalize the Economy

23rd December 2025, Kathmandu

Nepal Rastra Bank has officially released the comprehensive report prepared by the Banking Sector Reform Recommendation Task Force, which was established to address the multi faceted challenges currently impacting the financial system.

Task Force Recommendations

Formed on Jestha 30 2082 under the coordination of Dr Rewat Bahadur Karki the task force included prominent figures such as former banker Bhuvan Kumar Dahal. The primary goal of this body was to provide a roadmap for structural changes that could revitalize the economy and ensure long term financial stability. The report highlights that without immediate and decisive reforms the idle liquidity and weak credit flow within the banking system could hinder the recovery of the national economy.

STRENGTHENING SUPERVISION AND REGULATORY FRAMEWORKS

The task force has emphasized that risk based supervision must be the cornerstone of future banking oversight. This approach suggests that instead of a one size fits all regulation the central bank should adopt a more nuanced strategy that is both liberal and prudent. One of the major recommendations is to classify banks and financial institutions into 3 distinct categories based on predefined standards. Each category would then be subject to differentiated regulatory instructions that reflect their specific risk profiles and operational scales. This would allow the central bank to provide more focused guidance and support to institutions based on their actual performance and systemic importance.

A NEW REGULATORY MODEL FOR SPECIALIZED INSTITUTIONS

Recognizing the unique nature of various financial players the report proposes significant changes to how specialized institutions are governed. For microfinance institutions the task force suggests the creation of a separate regulator similar to the model successfully implemented in Bangladesh. Furthermore the report identifies a regulatory gap for non bank institutions like the Employees Provident Fund the Citizen Investment Trust and the Social Security Fund. Since these entities now handle massive transaction volumes they require a separate and robust regulatory framework to manage risks effectively and protect the interests of their participants.

CREDIT EXPANSION AND SUPPORT FOR BUSINESS REVIVAL

To combat the current economic sluggishness the task force recommends a series of measures aimed at increasing credit flow to productive sectors. There is a strong call for reviewing directed lending policies and prioritizing investments in education health transport and green energy. To support small scale entrepreneurs the report suggests making simplified business loans up to 500,000 rupees in rural areas and 1 million rupees in urban areas more accessible. Additionally the central bank is encouraged to facilitate loan restructuring processes that support struggling businesses without compromising the safety of depositor funds. Special incentives are also recommended for youth focused startups and information technology businesses to foster innovation.

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INNOVATIVE RURAL AND REGIONAL INITIATIVES

The report introduces a unique concept called the Rastra Bank in Rural Areas program. Under this initiative the Governor of the central bank would personally visit different regions on a monthly basis to gain firsthand knowledge of credit demand and local economic challenges. To support this regional focus the task force proposes the deployment of financial mentor teams. These teams consisting of experienced entrepreneurs and bankers would work at the local level to identify non traditional but high potential industries. This grassroots approach is designed to bridge the gap between central policy making and the actual needs of the rural economy.

CAUTIOUS APPROACH TO MERGERS AND ACQUISITIONS

Regarding the trend of consolidation the task force has advised extreme caution. The report notes that institutions that have remained independent have in many instances performed better than those that have undergone mergers. It warns that mergers are unlikely to be successful in the long term if they do not include the full integration of human resources technology and operational cultures. Rather than forcing consolidation the central bank should focus on the quality of integration and the actual benefits to the financial health of the resulting entities.

REFORMING THE CAPITAL MARKET AND EXITING THE GREY LIST

The report places a high priority on removing Nepal from the Financial Action Task Force grey list. It recommends a time bound action plan to complete all necessary legal and structural reforms within 2 years. In the capital market the most striking recommendation is the withdrawal of Nepal Rastra Bank representatives from the board of the Nepal Stock Exchange or NEPSE. This move is intended to reduce conflict of interest and promote a more independent and professional stock market environment. Other suggestions include adopting international best practices for margin lending and facilitating the participation of Non Resident Nepalis in the secondary market.

CONCLUSION AND ECONOMIC REVITALIZATION

The findings of the task force serve as a critical alarm for the financial sector of Nepal. By recommending a shift toward risk based supervision specialized regulation and a more inclusive rural credit policy the report seeks to restore the momentum of the domestic economy. The implementation of these reforms is seen as essential for building a more resilient banking sector that can support sustainable growth. As Nepal Rastra Bank begins to review these suggestions the focus will be on how quickly these policy changes can be translated into action to benefit the general public and the business community.

For More: Task Force Recommendations