The establishment of an asset management company, considered essential for handling the non-banking assets of banks and financial institutions, has become uncertain.

With non-banking assets on the rise, Nepal Rastra Bank (NRB) had announced plans to draft an Asset Management Act to facilitate the creation of such a company. The central bank made this commitment in the monetary policy for the current fiscal year (FY) 2024/25, with plans to submit the draft to the government. However, nine months into the fiscal year, NRB has yet to deliver the draft.

NRB spokesperson Ramu Poudel stated that work on the draft is ongoing and that it will be submitted within the current fiscal year. "A separate law is required to establish an asset management company," he said. "We are working to submit the draft within this fiscal year." NRB is also studying the company's structure and implementation strategies.

The High-Level Economic Reforms Advisory Commission, led by former Finance Secretary Rameshwar Khanal, has also recommended setting up an ‘asset management company’ to manage non-banking assets. The commission suggests forming such an institution through a public-private partnership.

Additionally, NRB’s preliminary draft includes a provision for an asset management company with shares of the government, banks, and financial institutions. The company is proposed to be structured similarly to the Deposit and Credit Guarantee Fund.

Former banker Parshuram Kunwar Chhetri noted that despite ongoing discussions, implementation remains uncertain. He recalled that the idea was first introduced when Nepal Bank and Rastriya Banijya Bank (RBB) faced financial difficulties. "At the time, the government committed to forming a separate company with foreign partners to manage bad assets," he said. "Now, nine months after the latest announcement, the draft law is still not public."

Meanwhile, bad loans have surged due to weak recovery efforts by banks and financial institutions. According to NRB data, non-banking assets have increased by 123% over the past 18 months. In FY 2023/24, these assets were valued at Rs 35.5 billion, rising to Rs 41.74 billion by mid-February of FY 2024/25.

Non-banking assets refer to properties seized by banks and financial institutions when loan collaterals fail to sell at auction. Since most bank loans are backed by real estate, the majority of these assets consist of land and buildings. However, bankers report that the recent economic slowdown and issues in the cooperative sector have made it difficult to sell these properties.