Recommendation to Recall Nepal Rastra Bank–Nominated Director from NEPSE

23rd December 2025, Kathmandu

In a move aimed at enhancing corporate governance and eliminating regulatory overlaps the Banking Sector Reform Recommendation Task Force 2082 has formally proposed the recall of directors nominated by Nepal Rastra Bank or NRB from the board of the Nepal Stock Exchange known as NEPSE. This recommendation is part of a broader set of structural reforms designed to modernize the financial landscape of Nepal and ensure that regulatory bodies operate with a high degree of neutrality.

NRB Nominated Director Recall

The task force which was chaired by Dr Rewat Bahadur Karki and included industry veterans like Bhuvan Kumar Dahal highlighted that the current arrangement where the central bank holds a seat on the stock exchange board creates an inherent conflict of interest.

ADDRESSING THE CONFLICT OF INTEREST IN FINANCIAL OVERSIGHT

The primary rationale behind this recommendation is the need for a clear separation between the banking regulator and the capital market operator. Nepal Rastra Bank serves as the primary regulator for banks and financial institutions which are themselves the most significant players on the stock exchange. When the central bank has a direct representative on the NEPSE board it can lead to situations where the regulator is involved in the day to day governance of the platform it is supposed to oversee indirectly. The report concludes that such a dual role can compromise regulatory neutrality especially when making decisions that impact the trading of banking shares or the implementation of monetary policies that affect market liquidity.

RECOMMENDATIONS FOR INSTITUTIONAL INDEPENDENCE

To replace the existing system the task force has advised the government and the central bank to adopt alternative institutional arrangements. The goal is to ensure that NEPSE can function as an independent commercial entity without direct interference from the central bank. By withdrawing its representatives NRB would be able to focus strictly on its mandate of maintaining price and financial stability while leaving the management of the stock exchange to professional board members and market experts. This shift is seen as a necessary step toward aligning the Nepalese capital market with international best practices where regulators typically maintain an arms length relationship with the exchanges they monitor.

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BROADER CONTEXT OF THE BANKING SECTOR REFORM REPORT 2082

The suggestion to recall NRB directors is just one component of the extensive report submitted to the NRB Governor. The task force was formed in Jestha 2082 to look into six major areas of reform including risk based supervision credit flow to rural areas and the removal of Nepal from the international grey list. The report notes that for the banking sector to be truly resilient the capital market must also be robust and transparent. Strengthening the governance of NEPSE through the removal of potential conflicts of interest is considered a foundational step in building investor confidence and attracting more institutional participation in the secondary market.

POTENTIAL IMPACT ON NEPSE GOVERNANCE AND MARKET DYNAMICS

If implemented this recommendation would lead to a significant change in the composition of the NEPSE board. Currently the board includes representatives from various government and semi government agencies. Removing the NRB director would open up a seat for an independent expert or a representative from a different professional background which could bring fresh perspectives to the exchange. Market analysts believe that a more independent NEPSE would be better equipped to handle issues like the automation of trading systems the introduction of new financial instruments and the overall modernization of the trading infrastructure. It would also reduce the perception that the central bank can exert undue influence over market movements through its presence on the board.

ENHANCING THE ROLE OF THE SECURITIES BOARD OF NEPAL

The withdrawal of NRB from the NEPSE board would also clarify the roles of different regulators. In the Nepalese financial system the Securities Board of Nepal or SEBON is the frontline regulator for the capital market. By exiting the NEPSE board the central bank would effectively be ceding more space for SEBON to exercise its authority without overlapping with the central bank interests. This clear demarcation of duties is essential for creating a stable regulatory environment where investors know exactly which authority is responsible for which aspect of the market. The task force believes that such clarity will ultimately lead to a more efficient and less bureaucratic financial system.

CONCLUSION AND NEXT STEPS FOR IMPLEMENTATION

The recommendation to recall Nepal Rastra Bank nominated directors from NEPSE is a bold move toward better governance in the financial sector. While the final decision rests with the NRB board and the Ministry of Finance the task force has provided a strong intellectual and practical framework for the change. As Nepal continues to navigate economic challenges the need for transparent and conflict free institutions becomes even more critical. If the central bank acts on this recommendation it will send a powerful signal to both domestic and international investors that Nepal is serious about following global standards of financial regulation and institutional independence.

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