Rising Bad Loans in Agriculture and SMEs Pose Rising Risk in Banks and Financial Institutions
Kathmandu — Nepal Rastra Bank (NRB) Governor Dr. Bishwanath Paudel has stated that the increasing volume of bad loans in the agriculture and small and medium enterprise (SME) sectors has significantly strained the country’s banking and financial institutions. Speaking at a pre-monetary policy discussion organized by the Society of Economic Journalists Nepal (SEJON), Governor Paudel emphasized that focusing only on large businesses through monetary policy would not address the current economic imbalance.
The upcoming monetary policy for fiscal year 2082/83, he said, will aim to improve loan flow to agriculture and SMEs. However, he acknowledged that non-performing loans (NPLs) in these sectors have risen, becoming a critical challenge for financial stability. Paudel stressed the need for broader economic support during times of instability, warning against deepening gaps between large businesses and grassroots entrepreneurs.
Senior Vice President of the Confederation of Banks and Financial Institutions Nepal (CBFIN), Rajesh Upadhyay, pointed to declining disposable incomes as a key reason for low credit demand, despite reduced interest rates. He said increased living costs and high youth migration have weakened consumer markets, while delays in the implementation of working capital loan guidelines have further constrained lending.
Former Chief Secretary Dr. Baikuntha Aryal criticized the government’s lack of policy consistency, noting that while it claims to be pursuing expansionary and reform-driven fiscal strategies, the private sector continues to struggle due to frequent shifts in economic direction. Former FNCCI President Shekhar Golchha also highlighted the need to uplift private sector confidence through the upcoming monetary policy.
Meanwhile, Nepal Bankers’ Association President Santosh Koirala called for the establishment of a dedicated and empowered asset management company. He noted that banks alone cannot handle the growing volume of distressed assets, and that a specialized entity is essential to resolve the NPL burden efficiently.