Debate Intensifies Over Issuance of New Banking Licenses in Nepal

In recent weeks, the topic of issuing new banking licenses has become a matter of national debate in Nepal’s financial and political spheres. Discussions were triggered following indications that Nepal Rastra Bank (NRB) might open up applications for new banking institutions. This has raised critical questions about whether Nepal's current banking ecosystem actually requires more financial institutions or if the focus should remain on strengthening and optimizing existing ones.

This topic gained further prominence during a meeting of the Public Accounts Committee (PAC) under the House of Representatives, held on Asar 25 (July 9, 2025). In this session, the committee summoned NRB Governor Dr. Vishwanath Paudel, former National Planning Commission Vice Chairman Dr. Min Bahadur Shrestha, and former NRB Executive Director Nar Bahadur Thapa to provide expert insights. During the discussion, Dr. Shrestha strongly supported the idea of issuing new banking licenses, especially for the establishment of regional banks. He emphasized the need for banks tailored to the needs of Nepal's federal structure and local economies, arguing that financial inclusion should extend to underserved provinces and rural areas.

Following the discussion, the committee formally directed Nepal Rastra Bank to conduct a comprehensive study and submit a detailed report on the necessity and justification for new banking licenses. The report, which is to be submitted by the end of Asoj 2082 (mid-October 2025), must evaluate the outcomes of the bank’s past merger and acquisition (M&A) policy. Specifically, NRB must assess whether the M&A initiatives met expectations in terms of operational efficiency, financial stability, and risk reduction. Additionally, the study should determine if the current number of commercial banks, development banks, and finance companies in Nepal is sufficient or if there is a need for more institutions.

Beyond the licensing issue, the committee has assigned several additional responsibilities to NRB. One key directive involves ensuring that the real interest rate remains positive in the long term. This means interest rates on deposits should consistently outpace inflation, encouraging savings and preserving the value of money for depositors. Furthermore, the committee has asked NRB to provide policy recommendations for integrating informal economic activities into the formal financial system, helping improve tax compliance and economic transparency.

Another critical area of focus is the utilization of remittances. The committee has instructed NRB to propose frameworks that would direct remittance inflows into productive sectors of the economy, rather than consumption or unproductive investment. In addition, the committee urged NRB to further promote digital payment systems such as mobile banking, digital wallets, ConnectIPS, and QR codes. These platforms must be made more reliable and affordable to encourage adoption and reduce transaction costs across the financial ecosystem.

The committee also expressed concern over the lack of public awareness regarding different types of interest rates. Many borrowers do not clearly understand the difference between fixed and floating interest rates, leading to confusion and mistrust in the banking system. To address this, NRB is instructed to create and disseminate public awareness materials explaining the risks and benefits of each interest type, the concept of compound interest, and the consequences of default. Banks will also be required to educate their customers on these matters using both traditional and digital platforms.

This comprehensive set of directives reflects a broader shift in Nepal’s financial policy environment. The coming months will be crucial as NRB undertakes this research and outlines a future roadmap. Whether the result will favor continued consolidation or a move toward localized, federated banking remains to be seen. What is clear, however, is that the government seeks an evidence-based approach to reshaping Nepal’s financial architecture in a way that supports sustainable, inclusive, and regionally balanced growth.