Governor Poudel Engages Bank CEOs In High-Level Strategic Dialogue On Reforms, Exit Policy, And Specialized Banking

30th July 2025, Kathmandu

In a landmark initiative poised to redefine the landscape of Nepal’s financial system, Dr. Biswo Nath Poudel, Governor of Nepal Rastra Bank (NRB), convened a high-level, strategic consultative meeting with the chief executive officers (CEOs) of the nation’s commercial banks on Tuesday, July 29 (Shrawan 13). This crucial dialogue delved into a broad spectrum of structural and policy-oriented issues, marking a significant step towards comprehensive reform.

Governor Meets bank CEOS

Key topics on the agenda included the proposed amendment to the Bank and Financial Institutions Act (BAFIA), the ambitious second-phase financial sector development strategy, the practical implementation of the monetary policy for Fiscal Year 2082/83, and the strategic pivot towards sectoral credit specialization.

Unpacking the BAFIA Amendment: Separating Bankers and Business Owners

One of the most intensely debated topics during the high-level meeting was the controversial yet pivotal proposal to clearly separate the roles of bankers and businesspeople within the financial ecosystem. This significant provision is embedded within the BAFIA amendment bill, which is currently undergoing meticulous review by the Finance Committee of the House of Representatives. The proposed legislative changes aim to reduce the threshold for “significant ownership” in banks from the current 2% down to a tighter 1%. More critically, it seeks to prohibit individuals holding such stakes from borrowing from the very banks in which they possess ownership.

While the primary intention behind these stringent measures is to minimize inherent conflicts of interest and substantially enhance transparency across the banking sector, the CEOs present voiced considerable concern. Their main apprehension revolved around the absence of a clear and equitable exit policy for existing promoters and investors who might find themselves compelled to divest their stakes under the new, stricter regulations. Bankers emphatically argued that a proper, well-defined “exit mechanism” is absolutely essential to prevent potential market disruption and to safeguard crucial investor confidence. As one CEO candidly remarked, “Today, promoter shares cannot be sold easily, even at half their value, there are no buyers. If we are going to ask promoters to exit, the environment must be conducive for it.” This highlights the urgency for a pragmatic solution that acknowledges market realities.

In response to these valid concerns, both Governor Poudel and Finance Minister Barshaman Pun reportedly acknowledged the critical need for a well-planned and carefully executed exit strategy. The Governor specifically indicated that adequate time and appropriate incentives must be provided to make such a significant transition feasible and equitable. Furthermore, he raised the intriguing possibility of implementing phased exits, a flexible approach that would avoid making distinctions between institutional and general shareholders, promoting a level playing field for all.

Pioneering Specialized Banking: A Shift from Universal Models

Another transformative area of discussion focused on the classification of banks by specialization, signaling a decisive departure from the existing, often criticized, one-size-fits-all model of universal banking. Governor Poudel articulated a clear vision: banks should strategically focus on specific sectors where they possess genuine comparative advantages. This could encompass high-growth areas such as hydropower development, agricultural financing, tourism-specific lending, or dedicated support for Micro, Small, and Medium Enterprises (MSMEs). This fundamental policy shift was strategically foreshadowed in the recently unveiled monetary policy for FY 2082/83 and is anticipated to be reinforced by further, more detailed regulatory frameworks from the central bank.

Participating CEOs, for the most part, welcomed this forward-thinking idea, recognizing its potential to foster expertise and efficiency. However, they also prudently cautioned against the potential pitfalls of concentration risk. As one participant wisely warned, “If one or two banks focus solely on a single sector, a downturn in that sector could destabilize the entire institution.” Despite these valid concerns, the NRB appears steadfast in its commitment to adopting a more specialized banking architecture, drawing inspiration from global trends that advocate for focused lending and deep, sector-specific expertise to build a more resilient financial system.

Monetary Policy Implementation and Economic Stimulus

The comprehensive dialogue also meticulously reviewed the current status and inherent challenges associated with implementing the Fiscal Year 2082/83 monetary policy. This policy package is strategically designed to invigorate credit flow across the economy by lowering deposit interest rates and offering crucial loan rescheduling facilities to businesses and individuals facing difficulties. While these measures are undeniably aimed at stimulating broader economic activity, Governor Poudel issued a stern warning to banks, emphasizing the paramount importance of ensuring that such facilitations are not misused or exploited, thereby maintaining financial discipline.

In a constructive counterpoint, bankers highlighted that monetary policy, while powerful, cannot single-handedly reinvigorate the economy. They stressed that government spending must increase in parallel to achieve a truly impactful and sustainable economic recovery. Furthermore, they called for accelerated annual general meetings (AGMs) and timely dividend distributions by listed companies. These actions, they argued, would significantly improve investor sentiment, inject much-needed liquidity into the market, and ultimately contribute to overall economic vibrancy.

Charting the Future: Strategic Reforms and Inclusive Policies

This extensive and collaborative dialogue between Nepal’s central bank and its top banking executives vividly reveals a shared sense of urgency for fundamentally restructuring Nepal’s financial sector. The collective goal is to make it more resilient against shocks, enhance its transparency, and orient it more robustly towards sustainable economic growth. Governor Poudel is expected to follow up on this initial consultation by holding further critical discussions with the chairpersons of banks’ boards of directors. This layered approach aims to ensure that crucial aspects of governance, ownership structure, and sectoral alignment are comprehensively addressed at all levels of financial leadership.

The NRB’s strategic direction for the foreseeable future is now firmly anchored on three interdependent pillars:

• Comprehensive Regulatory Reform: Primarily driven through the essential BAFIA amendments.
• Profound Financial Sector Transformation: Achieved through the strategic adoption of specialized banking models.
• Balanced Economic Stimulation: Through judicious credit facilitation and the implementation of investor-friendly policies.

While the successful implementation of these ambitious reforms will undeniably necessitate careful planning, precise timing, and extensive cross-sectoral collaboration, the ongoing high-level engagements signal a pivotal moment. Nepal’s financial leadership is clearly aligning for a generational shift in banking policy. This transformative shift aims to decisively separate conflicts of interest, significantly strengthen institutional foundations, and meticulously prepare the financial sector for highly specialized, future-ready operations, ensuring Nepal’s economic prosperity in the years to come.

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