Nepal Rastra Bank Governor Biswo Nath Poudel has questioned the nature of the operating licenses granted to current banks and financial institutions.

Speaking at the Finance Committee meeting of the House of Representatives on Thursday, he remarked that while other licenses have expiration dates, bank licenses do not. He argued that if licenses are perpetual, barriers to market entry should be reduced to increase competition.

Otherwise, he expressed the view that banking licenses should also be granted for a fixed term. "Many other licenses have a lifespan, but a bank license is, in a sense, is eternal. On the other hand, we are not allowing new banks to enter the market, and questions are being raised about the lack of new licenses. Just like hydro licenses, where the project returns to the government after 30 years, and telecom licenses, which also have a term, banks do not have this provision," Governor Poudel said during the discussion on the Bank and Financial Institutions (BAFIA) Bill held by the Finance Committee. "If the license is eternal, then entry barriers should be reduced to encourage competition. Otherwise, licenses should also be time-bound."

Bank licenses in most countries are granted for an indefinite period, with the standard practice being revocation if regulatory norms are violated.

Although the Governor suggested that bank licenses could be issued for a limited period, a senior NRB official clarified that NRB has no such plan. "There is no provision for this in either the current law or the proposed amendment bill," the official said. While Governor Poudel questioned the prolonged restriction on new entrants in the banking sector, the NRB itself has not issued any new licenses for the past 15 years. Citing regulatory challenges due to the rapid proliferation of banks and financial institutions, the NRB has instead adopted a policy of encouraging mergers. "There is no preparation to issue new licenses," the official confirmed.

Governor Poudel also criticized the prolonged holding requirement for promoter shares, saying it prevents investors from selling their assets and reinvesting elsewhere. "The Constitution guarantees the right to property. No one can compel you to sell your assets. So, the challenge is to balance property rights with financial discipline," he stated.

Governor Poudel further linked access to credit with fundamental rights. "I always believe that if you have a good project, obtaining a loan should be your natural right, just like your right to bask in the sun or drink water," he said. "In that regard, my rights and those of an honorable person should be equal."

According to the Governor, the constitutional right to property should not be undermined in the name of regulation. He explained that the proposed provisions in BAFIA are intended to align Nepal’s banking system with international commitments and the Basel Core Principles, a global standard for financial regulation.

According to Poudel, 373 individuals in Nepal currently own more than 1 percent of shares in financial institutions, including 72 in commercial banks, 130 in development banks, and 171 in finance companies. He also noted that efforts are underway to ensure greater transparency and discipline in transactions involving those parties. "The committee has the right to decide how strict or lenient these provisions should be," he added.

Poudel emphasized that the Rs 700 billion circulating in the banking system should not be seen merely as private capital, but as a resource for the national economy. "Anyone with sound business ideas and entrepreneurial skills should be able to access this capital," he stated.

Businesspeople Reluctant to Invest: MP Karki

Former Finance Minister and Nepali Congress MP Gyanendra Bahadur Karki said that legal reforms should be made thoughtfully and in line with international practices. He stressed that the BAFIA Bill should undergo thorough and reform-oriented discussion to stimulate the economy.

"Public trust in banks must be restored. If trust declines, the state will fail," he said during the Finance Committee meeting. "There is liquidity in the banking sector, but entrepreneurs are hesitant to borrow and invest. Until a business-friendly credit environment is created, economic recovery is unlikely."

He also noted that many ordinary citizens still struggle to obtain loans. "It is becoming increasingly difficult to secure loans under Rs 10 million. Excessive collateral demands are causing unnecessary hardship. This must be addressed," Karki added.

No Conflict of Interest if Businesspeople Are on Bank Boards: MP Chaudhary

Nepali Congress MP and industrialist Binod Chaudhary pointed out that it is difficult to find buyers for bank shares, even when prices fall below their face value.

Citing investor pessimism, he said, "Just yesterday, a friend offered to sell bank shares with a face value of Rs 100 for Rs 40, and still found no buyers. This reflects the declining confidence of investors in the banking and financial sector."

He argued that the BAFIA amendment must be considered in light of the current economic environment, weak investment demand, and surplus liquidity in banks. He refuted the notion that having businesspeople on the boards of banks automatically creates a conflict of interest.

"Once invested in a bank, a businessman cannot arbitrarily withdraw funds. The NRB has clear rules and procedures to prevent that," Chaudhary stated.

He said the real issue lies in the failure to clearly define the roles of investors and management. Stressing the need for professionals in bank boards and management, he opined, "Good management inherently protects investors’ interests."

 Time Needed to Separate Bankers and Industrialists: MP Rana

Nepali Congress MP and former Minister of State for Finance Udaya Shumsher Rana stated that good governance principles do not allow the same person to act as both banker and businessman. Although he acknowledged practical challenges, he said that a gradual separation of the two roles is necessary.

"It is necessary to separate bankers and industrialists. Even if this provision is included in the bill now, its implementation should be delayed," he said. "The clause should come into effect 15 years after the law is enacted. If someone owns a bank, they should be a banker, not both a banker and a businessman."

He said this overlap creates conflicts of interest. However, given Nepal’s unique context, he proposed that legal arrangements take practical realities into account.

"Many bank promoters have borrowed from other banks by pledging their shares. The BAFIA Bill prohibits such individuals from taking loans, which is a reasonable restriction," he said. "While this helps address conflict of interest, there are practical problems. There are around 150 large businesspeople. Preventing them from accessing loans merely because they hold shares in banks could harm the economy. That’s why a 15-year transition period is necessary."

No Need to Rewrite BAFIA Bill: Revenue Secretary Ghimire

Dinesh Kumar Ghimire, Revenue Secretary at the Ministry of Finance, said there is no need to rewrite the BAFIA Bill. Instead, he urged Parliament to pass the version introduced by the government two years ago.

"A single bill cannot make the entire economy dynamic. Our focus should be on strengthening institutional governance, which BAFIA addresses," he said. "While much has been included in the current bill, more can be added clause-by-clause. But BAFIA alone cannot address every issue."

He said the government is also working on other legislative reforms to boost the economy. Laws concerning property management are being drafted, and discussions are ongoing about foreign investment regulations.

"The Nepal Rastra Bank Act is also being modernized. In total, we are amending two dozen laws to improve the investment environment," Ghimire stated.