As the government pushes forward with an amendment to the Bank and Financial Institution Act (BAFIA), Nepal Rastra Bank Governor Biswonath Poudel has defended the proposed reforms, emphasizing the need to clearly separate banking from business.
Speaking before the Finance Committee of the House of Representatives on Monday, June 2, Governor Poudel said the amendment seeks to establish clear rules about who is eligible to receive loans from banks and under what conditions.
“It is crucial to define who can borrow from banks, how much they can borrow, and what roles bank promoters and directors can play,” he said. “If other countries maintain a clear distinction between bank investors and businesspeople, we must also decide what is appropriate for Nepal.”
Poudel noted that a small fraction of borrowers hold a disproportionately large share of loans. “Just 0.01 percent of the 1.94 million borrowers in the country account for 3.9 percent of total loans,” he revealed.
The proposed amendment—currently under clause-wise discussion in the Finance Committee—has drawn sharp criticism from business leaders. They argue that the bill contains overly restrictive provisions that could stifle economic activity and discourage entrepreneurship and job creation.
One of the key provisions in the amendment defines any individual holding at least a 1 percent stake in a bank or financial institution as a “significant owner.” Such individuals—and their immediate family members—would be barred from obtaining loans from any financial institution. Article 52 of the amendment stipulates that "banks or financial institutions shall not provide any type of loan or facility to significant owners of any bank or financial institution.”
Further, Article 18 proposes barring individuals and their families from serving on bank boards if they have taken commercial loans exceeding 1 percent of the bank’s paid-up capital. The same restriction applies if the total commercial loans of an individual, their family, or affiliated companies exceed this threshold.
The amendment bill was originally tabled in Parliament in January 2024 by then-Finance Minister Barsha Man Pun. It is currently undergoing stakeholder consultations as part of the committee's review process.
During last week’s discussion, Nepali Congress lawmaker and industrialist Binod Chaudhary proposed that the bill be sent back to Nepal Rastra Bank for redrafting. He argued that the economic context has shifted since the bill was first drafted, and a revised version would be more relevant and practical.
The headline has been updaed for clarity.
