Governor Paudel: Rising Bad Loans Are Creating Problems for Banks and Financial Institutions

 Kathmandu, July 6 – Nepal Rastra Bank Governor Dr. Bishwanath Paudel has raised concerns about the growing number of bad loans in the agriculture and small business sectors, saying it’s putting pressure on banks and financial institutions. He said focusing only on large businesses in monetary policy won’t solve the issue.

Speaking at a pre-budget discussion organized by the Society of Economic Journalists (SEJON), Governor Paudel said that the upcoming monetary policy for the fiscal year 2082/83 will focus more on supporting agriculture and small and medium-sized enterprises (SMEs). “We want banks to lend more to these sectors, but rising bad loans are making it difficult. We have to deal with this problem directly,” he said. He also pointed out that during economic downturns, every sector suffers, so it’s unfair to prioritize big businesses while ignoring farmers and small entrepreneurs.

Rajesh Upadhyay, senior vice president of the Confederation of Banks and Financial Institutions Nepal (CBFIN), said that even though interest rates have dropped, people aren’t taking more loans because their spending capacity has decreased. “Costs have gone up, but incomes haven’t. With more young people leaving the country, market demand is also shrinking,” he said. He added that while rules for working capital loans are necessary, the government hasn’t implemented them on time. He warned that bad loans are now a broader social problem, not just a banking issue.

Former Chief Secretary Dr. Baikuntha Aryal criticized the government for frequently talking about economic reform and expansion, while in reality, inconsistent policies are hurting the private sector. “There’s a lot of talk about tax reforms and growing the economy, but the policies keep changing and don’t match the claims,” he said.

Former FNCCI president Shekhar Golchha said the upcoming monetary policy should focus on rebuilding trust in the private sector.

Santosh Koirala, President of the Nepal Bankers’ Association, stressed the need for a strong and independent asset management company to handle bad loans. “Right now, banks are trying to do this work themselves, which isn’t sustainable. We need a dedicated institution to manage these bad assets,” he said.

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