Nepal Rastra Bank’s regulatory approach raises red flags for economic stability

Nepal Rastra Bank (NRB), Nepal’s central bank, has negligently failed to implement prudent risk management policies to oversee lending practices by Nepal’s Banks and Financial Institutions (BFIs) including Microfinance Institutions (MFIs). This regulatory gap has allowed excessive borrowing, masked the true risk exposure on loans, and permitted loan concentration among a few large clients.

Without reform, Nepal Rastra Bank’s inaction threatens the solvency of individual households along with the stability of banks and the overall financial system. As the severity of the problem grows to a level that is already unstable, the clock is ticking for the country’s central bank authority to come up with a policy implementation plan.